Spring 2021 Chief Executive Magazine by Chief Executive Group

YOU CALLED IT: THE 2021 BEST AND WORST STATES FOR BUSINESS

THE VOICE OF AMERICA’S CEO COMMUNIT Y | SPRING 2021

REVS UP 50% IN 2020! HINT WATER CEO KARA GOLDIN

LET’S

GROW! An explosive economy, hungry customers and hot markets. Are you ready for the boom? A special report.

PLUS: RAM CHARAN: Are You the CEO You Need Now? JEFF IMMELT: What I Should Have Done 1 / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

Put down roots for your business where there’s room to grow. If you’re looking for a skilled workforce, operating costs 70% lower than San Francisco and New York City1, a business-friendly tax structure that incentivizes growth, and a high quality of life for business owners and employees, then Ohio is for you. Learn why 27 of the nation’s Fortune 500 companies call Ohio home2—nearly three times the national average—and see how your business can flourish here too.

OhioisforLeaders.com

Ohio’s Economic Development Corporation

in the U.S. in quality of life 3

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300+

higher education campuses 4

state tax on corporate profits

1 - Cushman Wakefield: Q3 2019 2 - Fortune Magazine, 2020 3 - Forbes, 2020 4 - EMSI; IPEDS 2019

C O NTE NT S

S P R I N G 2021 No. 310

FEATURES SPECIAL REPORT: GROWTH 22 IT’S GROW TIME! Ready for the post-Covid boom? Savvy CEOs share their strategies for making the most of a magic moment. By Dale Buss 22

30 ARE YOU THE CEO YOU NEED? The biggest risk—and opportunity—in your business today? Your leadership. A guide to what you and your team must do to grab competitive advantage and exponential growth in a digital age. By Ram Charan

AFTER-ACTION REPORT 40 ‘IT’S COMPLICATED’ Roundly blamed for leveling the house that Jack built, former GE CEO Jeff Immelt offers a candid assessment—and lessons learned—from his tenure. Interview by C.J. Prince

ECONOMIC DEVELOPMENT 48 CHIEF EXECUTIVE ’S 2021 BEST &

WORST STATES FOR BUSINESS

While stalwarts remained at the top, the pandemic prompted movement in CEOs’ ranking of the states. By Chief Executive Staff

STRATEGY 54 CANCEL CULTURE CONFIDENTIAL 40

Yes, operating a company in a politically divided America has risks—but those risks can be managed—and potentially used to your advantage. A guide. By Dale Buss

TALENT MANAGEMENT 60 THE CEO-CHRO PARTNERSHIP A new survey highlights where CEOs and HR chiefs are on the same C-Suite page—and where they’re not. The upshot? There’s room for improvement. By C.J. Prince

CEO EVENTS 64 GETTING PE PORTCO LEADERSHIP RIGHT Chief Executive assembled veteran CEOs, investors and leadership pros to get a clear view of what it takes to steer a portfolio company today. Some takeaways. By Jennifer Pellet

66 THE FUTURE OF THE FINANCE

FUNCTION Getting your CFO to step up and be your strategic partner may well determine how successful you are at creating value longterm. By Jennifer Pellet

48 COVER PHOTO: BRIAN FLAHERTY

T H O UG H T LE AD ER SHIP PR OV ID ED BY 4SI T E BY CO R T

REFORMING OFFICE SPACE How data can help businesses bring workers back to the office safely today— and make informed decisions about tomorrow.

IT’S BEEN MORE THAN A YEAR since the pandemic turned many offices into virtual ghost towns, sparsely populated or even entirely empty—their former occupants relegated to working from home. With the vaccine rollout in full swing, many are now gearing up to bring people back into the office. It’s a time of hope but also of concern, as businesses balance the desire for a return to some semblance of normalcy with the need to ensure a safe working environment. Further complicating the picture is the sense that office usage may be forever changed. Companies are rethinking everything from who will be in workplaces and how often to the amount of space needed and how it should be configured. Chief Executive spoke with Allison Ballard, vice president and executive director of 4SITE by CORT, about the challenges of creating workspaces that are safe, affordable and efficient and the role data can play. Since the pandemic, we’ve been hearing a lot about the possibility of significant numbers of workers who were sent home to work remotely never returning to the office. What are you seeing with regard to the future of remote work? In the aftermath of the pandemic, when organizations found that their people could be productive working from home, they started wondering why they were paying for all that real estate. But as it went on, the pendulum began to swing back. Employees began to really miss the serendipitous interactions of the workplace and the collaboration, knowledge-sharing and mentorship that happens there. And at the C-Suite level, there’s been recognition that productivity is decreasing, as remote work winds on and people struggle with the stress of working in isolation. There is also increasing concern about maintaining corporate culture and long-term retention of talent without direct personal contact.

Both employees and employers are anxious to understand how things will normalize over time. What’s the right mix of in-person and remote? What is the right amount of space I need for how my agile workforce wants to work? Unproductive space is a remarkable drag on the bottom line. Utilization data can provide the confidence required to justify changes to the office space and mitigate exposure to long-term real estate liabilities. What about the issue of safety in the workspace? How much of a barrier are safety concerns in bringing people back to office spaces? It’s essential that people feel that you’re protecting their well-being, taking steps to make the space safe. Things like reconfiguring workspaces to allow for social distancing and limiting risk through disinfection and sanitization can help them feel confident about coming back. How can companies leverage technology to optimize their workspace usage and get a better understanding of how much space they will need in the future? Understanding how employees interact with their workspace can play a critical role in making informed decisions about the right space for the future. Motion sensors placed throughout your office space can collect information about how offices, desks and conference rooms are being used, including time of day and length of time. You can use that data to make cost-saving, long-term decisions about real estate, as well as how office spaces should be configured. For example, you might want to look at the percentage of time private offices are used to evaluate whether they’re the right use of space or if certain departments can consolidate their space requirements.

| 4sitebycort.com

What can sensors do to help companies determine what safety measures to put in place? Monitoring the places people use yields data that can be used to inform janitorial services to ensure that the necessary disinfection and sanitization takes place in every office and room used that day—and, conversely, that resources aren’t being wasted sanitizing areas that have not been used. They can help you meet regulatory requirements by monitoring movement to ensure that occupancy isn’t exceeding the maximum capacity allowed. Should someone who has been in the workplace test positive, sensors can also allow you to contact trace employees who were in the same area and may have been exposed. Ultimately, they give you and your people peace of mind. Going that extra mile to get a more granular understanding of potential exposure and monitoring for social distancing protocols and sanitization needs tells them that they’re important enough to you that you’re doing everything you can to make the workplace as safe as possible and protect their well-being.

“Understanding how employees interact with their workspace and how that interaction normalizes in the seasons to come will play a critical role in making informed decisions about the right space for the future.” —Allison Ballard, Vice President and Executive Director, 4SITE by CORT

C O NTE NT S

EDITOR Dan Bigman MANAGING EDITOR Jennifer Pellet EDITOR-AT-LARGE Jeffrey Sonnenfeld DIGITAL EDITOR C.J. Prince PRODUCTION DIRECTOR Rose Sullivan CHIEF COPYEDITOR Rebecca M. Cooper ART DIRECTOR Gayle Erickson CONTRIBUTING EDITORS

Dale Buss, Daniel Fisher, Craig Guillot, Patrick Lencioni, Matthew Scott EXECUTIVE EDITOR / STRATEGICCFO360

Emily DeNitto PUBLISHER

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

DEPARTMENTS

DIRECTOR, BUSINESS DEVELOPMENT

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

MANAGER, STRATEGIC PARTNERSHIPS

EDITOR’S NOTE

The Homestretch

RESEARCH Resilience and Determination Emerging from Crisis

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

CHIEF EXECUTIVE GROUP EXECUTIVE CHAIRMAN

10 LEADERS 10 The Vaccination Dilemma By Johnny C. Taylor, Jr. 14 Law Brief / Daniel Fisher Dangerous Territory 16 Transformation / Patrick Lencioni Loneliness Is Not an Option 18 On Leadership / Jeffrey Sonnenfeld Transition Time

Wayne Cooper

CHIEF EXECUTIVE OFFICER

Marshall Cooper

DIRECTOR OF EVENTS & PUBLISHER, CORPORATE BOARD MEMBER

Jamie Tassa

CHIEF CONTENT OFFICER

Dan Bigman

PUBLISHER, STRATEGICCFO360.COM

KimMarie Hagerty

DIRECTOR OF MARKETING

Simon O’Neill

VICE PRESIDENT, HUMAN RESOURCES

68 PLANE ADVANTAGE

Aviation Game Changers Meet eight companies bringing innovative ideas to private aviation. By Dale Buss

72 LAST WORD

Getting to the Pandemic Finish Line Tips from a CEO and 50-time marathon runner. By Ryan Wuerch

Melanie Haniph

VICE PRESIDENT Kendra Jalbert RESEARCH DIRECTOR Melanie Nolen DATA SERVICES DIRECTOR Jonathan Lee DIGITAL DIRECTOR Leigh Townes CONTROLLER Brittney Smith MARKETING MANAGERS

Simone Bunsen, Nicole Shorette EVENTS SPECIALIST Rachael Gaffney DATA ANALYST Denise Gilson CLIENT SUCCESS COORDINATOR

Aftan Walls

BUSINESS DEVELOPMENT ASSOCIATE Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 310 Spring 2021. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group LLC at 9 West Broad Street, Suite 430, Stamford, CT 06902, USA, 203.930.2700. Wayne Cooper, Executive Chairman, Marshall Cooper, CEO. © Copyright 2019 by Chief Executive Group LLC. All rights reserved. Published and printed in the United States. Reproduction in whole or in part without permission is strictly prohibited. Basic annual subscription rate is $99. U.S. singlecopy price is $33. Back issues are $33 each. Periodicals postage paid at Stamford, CT, and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group, LLC, 9 West Broad Street, Suite 430, Stamford, CT 06902

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ED I TOR ’ S NOTE CHIEF EXECUTIVE OF THE YEAR

THE HOMESTRETCH IT WILL FEEL GOOD TO WRITE ABOUT SOMETHING ELSE in one of these columns someday. After all, there is so much more to the world of business than what we’ve endured with Covid. And yet. For those that have led through this time, this last year will prove to be indelible. It is not over. I’d like to think that we are in the homestretch of this deadly virus. Everything seems to be pointing that way. As of this writing, 30 percent of all Americans have received at least one dose of vaccine. Many, many more soon will. Add that to the tens of millions of people who have already had the virus, it would seem we were well on our way to the end. Appropriately, many states have eased up on restrictions. Kids are back in school. Consumer businesses are—often with more care and caution than their governments allow—rapidly reopening locations. Meanwhile, manufacturers and most white-collar companies are taking things methodically, sticking with masks, remote work or a combination. Far from the media glare, CEOs who fought hard and sacrificed over the past year to keep business going are in no rush to change plans and risk disaster just yet. It’s a good time for business—quietly, perhaps—to take a bit of a bow. At almost every level, in almost every state, the past year has shown U.S. private enterprise to be up to the challenge of our times. We didn’t do it alone, of course. The government played an essential role. Still, even the most intellectually dishonest and strident anti-business voices would have to admit that capitalism—yes, it’s ok to use the word—has proven to be a powerful and essential tool to combat Covid, developing vaccines, protecting workers, keeping the economy going and bringing hope to billions. Now, as we move to this next phase of the crisis, it is critically important to look beyond our borders, where things are not going quite so well. Lacking pharmaceutical industries with the innovation and muscle of America’s, vast swaths of the world are deficient in vaccines. In Latin America, in Africa—hell, in Canada and Europe—millions and millions of people are still contracting and spreading Covid. While they wait for inoculation, the virus is mutating and threatening to turn a two-years health crisis into a generational one. The virus does not know boundaries. As we’ve come to learn, the botched, fearful response of a regional government in China caused the worst health and economic disaster of our lifetimes. In our global, interconnected era, there’s little to protect any of us from the actions of untruthful politicians and party apparatchiks, no matter where they reside. What happened in Wuhan should be our guide going forward. We should not be afraid of the truth or of the challenge ahead. We should channel Jim Collins and continue to confront the brutal facts: Covid remains a reality and left alone, it could thrive again. It will take the ingenuity, strength and generosity of America—particularly American business— to eradicate it. We’ve been up to the challenge of the last year. We’re up to the task of the next one, too. —Dan Bigman, Editor, Chief Executive

6 / CHIEFEXECUTIVE.NET / SPRING 2021

2021 SELECTION COMMITTEE ADAM ARON President and Chief Executive, AMC

DAN GLASER President and Chief Executive, Marsh & McLennan

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

NEAL KEATING President and Chief Executive, Kaman

TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries

MAX H. MITCHELL President and Chief Executive, Crane Co.

BRIAN MOYNIHAN Chairman and Chief Executive, Bank of America 2020 CEO of the Year

ROBERT NARDELLI Chief Executive, XLR-8

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

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

CARMINE DI SIBIO Global Chairman & CEO, EY Exclusive Adviser to the Selection Committee

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

CONTACT US CORPORATE OFFICE Chief Executive Group LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 Fax: 203.930.2701 ChiefExecutive.net LETTERS TO THE EDITOR letters@ChiefExecutive.net Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 Fax: 847.730.3666 advertising@ChiefExecutive.net REPRINTS Phone: 203.889.4974

MICHIGAN: Ready for the ‘New Normal’

With its rich manufacturing heritage, highly skilled workforce and natural beauty, the Great Lakes State offers businesses an ideal balance. MICHIGAN COMPANIES ARE LEANING INTO THE RECOVERY BY leveraging the state’s advantages as a talent repository and destination, as a major world locus of legacy manufacturing enhanced by digital transformation and as home to great cities, suburbs, exurbs, small towns and wide-open spaces that are ideal for the “new normal” in how people will work, play and live in post-pandemic America. “We were one of the states hit hardest by Covid at the beginning,” says Josh Hundt, chief business development officer and executive vice president of the Michigan Economic Development Corporation. “Not only did we rise to the challenge, but we’ve also built the base for a stronger recovery with our deep pool of highly skilled talent, our connected location, our affordable cost of living and our strong business climate.” In fact, in a nation where “blended” is coming to describe many aspects of the economy, Michigan presents a nearly ideal balance of business models, company types, industry verticals, centers of business activity, work locales and human-capital capabilities. The Michigan’s workforce training programs have been a boon for mobility supplier DENSO’s R&D.

state has the nation’s highest concentration of engineers and ranks in the top 10 for the number of skilled-trade workers, for instance, while also ranking in the top 10 for net technology employment. At the same time, Hundt says, Michigan is the fourth most affordable state. For such reasons, veteran entrepreneur David Ollila sees Michigan as the best-positioned state for attracting companies and workers that will now be executing hybrid teams who can work remotely and maybe occasionally duck into an office somewhere. “We’re seeing liquification of your ability to move and work and live all at the same time, and Michigan is the best-positioned state because of our geographic diversity and the diversity of our places to live,” says Ollila, who is co-founder of 100K ideas, a Flint, Michigan– based nonprofit that helps startups.

Lake Huron’s Turnip Rock is just one of many special vistas in Michigan.

Ollila also believes Michigan can become the buckle of a growing “outdoor-recreation” belt that features everything from manufacturers of recreational-vehicle frames to makers of grills, chairs and bicycles, as well as providers of connectivity services and others—all helping consumers take advantage of a “Pure Michigan” landscape that sweeps from the vast forested expanses of the Upper Peninsula to the sand dunes of Lake Michigan and the island enclaves in the Detroit River. “We have the extreme rural advantage of towns like Marquette and Houghton and Sault Ste. Marie and the rest of the UP, which is sophisticated but very much blended with nature,” he says. “And we have fantastic urban settings at the other end. The true Michigan advantage will come as we create symbiotic relationships among these rural and urban centers and economic opportunities.” All of this is being underscored by a Pure Michigan marketing campaign that celebrates not only the wonders of Michigan for tourists, but also its quality of life for residents to highlight the state as a business destination. “It shows how Michigan is a phenomenal place to live, work and play,” Hundt says. Greg Williams has leveraged Michigan’s advantages to grow Acrisure from $38 million to $2.2 billion in annual revenues in just eight years. The Grand Rapids, Michigan-based insurance-brokerage platform has supercharged expansion by making about 100 acquisitions a year of independent insurance agencies around the U.S. and the world. “But Michigan is our home base,” says CEO Williams. “We’ve got what we need here in terms of the quality of people and the quality of life. We can get all we need from a talent standpoint, and they’re high-quality people whose work ethic is second to none. And we’ve got an affordable standard of living in very vibrant communities.” Acrisure investigated moving its headquarters a few years ago “to a large city like Chicago,” Williams says. “We had options. But we’ve been able to recruit talent from all over the country, and when they come to Michigan, they say it’s a pretty cool place to live.” MEDC and the city of Grand Rapids also have helped with partnerships that “ensured we knew it was important to them for us to stay here,” he adds. “If you have all of those things, why would you go anywhere else?” DENSO, a leading mobility supplier, also credits MEDC for nurturing the company’s vital relationship with Michigan. With a dynamic workforce spread between its North American headquarters in Southfield, a thermal manufacturing facility in Battle Creek and locations in Belleville and Grand Rapids, DENSO has benefitted from the state’s creation of a fund to train new skilled employees and, recently, from the launch of the Going Pro Talent Fund for training incumbent workers. DENSO tapped into Going Pro for helping train its engineers in quality-process improvements, which “is critical as we transition to address new technologies,” says John Kerr, senior manager of government affairs for DENSO. “And Michigan understands that retraining and retaining the talent we have is just as important as attracting new workers.”

THOUGHT LEADERSHIP CONTENT PROVIDED BY MICHIGAN ECONOMIC DEVELOPMENT CORPORATION For more information on doing business in Michigan, visit michiganbusiness.org/pure-opportunity

CH I EF E XECUT IV E RE SE A RCH AD INDEX

GROWING CONFIDENCE IN RECOVERY

AWS EXECUTIVE INSIGHTS aws.amazon.com/executive-insights/ 37

Insights from Chief Executive Group’s CEO Confidence Index, a widely followed monthly poll of CEOs, including members of the Chief Executive Network (CEN), our nationwide membership organization that helps C-Suite executives improve their effectiveness and gain competitive advantages. For more information, visit ChiefExecutiveNetwork.com. IF ANYTHING POSITIVE CAME OUT OF THE TURMOIL OF 2020, it’s the testament to CEOs’ resilience and determination in successfully mitigating the impact and helping to turn things around for their communities. Through the crisis, your optimism that we, as a collective, would surmount the obstacles never faltered. Even at the peak of the pandemic, your level of confidence that things would improve remained high, even higher than it had been at different times the year prior, before Covid even appeared. You made it through 2020 with great confidence, and your optimism maintained its momentum during the first quarter of 2021. In January, our CEO Confidence Index, which polls hundreds of U.S. CEOs and business leaders each month on their outlook for business, hit 7 out of 10 on our 10-point scale—back to pre-Covid levels. That buoyancy continued into February and March, where your confidence that conditions 12 months from now would be better hit a two-year high, at 7.1/10. CEOs tell us this is all fueled by the belief that current vaccination efforts will successfully put an end to the pandemic. With relaxed restrictions on conducting business rolling out across the nation, many of you are forecasting tremendous growth in consumer spending when more than a year of pent-up demand is released. Not only is there hope that we will all soon return to a semblance of normalcy, some of you say the advancements in technology made in recent months paved the way to a new digital economy offering vast new opportunities for growth. According to our latest poll, you remain concerned about rising inflation and generous stimulus packages, with many of you telling us you are keeping a close eye on developing policies in Washington. Yet, 74 and 81 percent of you are projecting increases in profits and revenues over the coming months, as we re-emerge from the shutdown, and 64 and 56 percent plan to increase hiring and capital expenditures this year—the highest proportions in years and a clear indication of a shared resolve to finally put this crisis behind us. —Melanie Nolen, Research Editor, and Isabella Mourgelas, Research Analyst CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW 6.99 6.65

6.50

6.64

6.71

6.89

May

6.97

7.07

7.08

June

July

August

Sept.

Oct.

Nov.

Chief Executive’s CEO Confidence Index is measured on a scale of 1-10.

8 / CHIEFEXECUTIVE.NET / SPRING 2021

Dec.

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6.43

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6.87

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LE AD E R S

THE VACCINATION DILEMMA To mandate or not to mandate may not be the question. BY JOHNNY C. TAYLOR, JR. WITH THE MARCH ANNOUNCEMENT THAT pharmaceutical giant Merck will help rival Johnson & Johnson manufacture J&J’s Covid vaccine, President Joe Biden’s promise to have enough shots for every adult by the end of May appears to be on track. The light at the end of a long tunnel is brightening, and companies can finally plan, in earnest, a return to in-person work. That, in turn, has sparked a debate in executive suites and boardrooms over whether to require that employees get vaccinated before returning to the office. It does seem clear that getting to herd immunity is a win-win for companies in all industries and society as a whole; the sooner the U.S. population is vaccinated, the faster business in all industries can resume. And the more employees who are vaccinated, the less concerned we, as leaders, need to be about illness, productivity and shutdowns due to spread. It is also legal for companies to mandate. In December, the Equal Employment Opportunity Commission released revised pandemic guidance saying that employers generally can mandate that employees receive an FDA-authorized Covid-19 vaccine. The guidance included cautionary instructions regarding restrictions on disability-related questions and exemption protections based on medical conditions or religious beliefs. In those cases of exemption, reasonable accommodation must be made to the employee, such as working remotely or being reassigned to a non-customer-facing position. But while it may be legal to require vaccination, for many companies, the decision won’t be that simple.

10 / CHIEFEXECUTIVE.NET / SPRING 2021

Vaccination has become a fraught topic, thanks in part to the national politicizing of the virus, safety measures, shutdowns, etc. In spite of the science suggesting vaccines are efficacious and safe, there is no consensus among our country’s population. We are divided down the middle, and most companies will have one population of employees chomping at the bit to inoculate and another dead-set against it. So, given that, what’s a CEO to do? One option is to poll employees about how they feel. But while that will give CEOs some useful data about where employees stand on the issue, it can’t really be the driving force behind the decision. After all, we as leaders make plenty of unilateral decisions for our companies that plenty of employees disagree with; even when we solicit input, it’s a factor but not dispositive. Take the return-to-work question—would you cede this decision to an employee vote? Probably not. If you did, then the direction you take could change month to month depending on the outcome of your employee survey. Certainly, you want to know what employees are thinking and how the majority feel about the issue, but ultimately, the decision is yours. That’s why I would suggest it should all come down to culture. If you’re running a manufacturing plant, for example, or a restaurant or a hospital—all of which require employees to come to work in person—and you champion a culture that prioritizes safety and health, then a companywide mandate would show you’re putting muscle behind that credo. If, on the other hand, you’re running a services firm that doesn’t necessarily

require in-office work and your culture prioritizes autonomy and personal accountability, then it may make sense to let your employees decide for themselves whether to vaccinate. At a majority of companies, the jury clearly is still out. Four in 10 companies say they won’t insist on a Covid-19 vaccination, but 55 percent are still undecided, according to SHRM research.

55%

of employees surveyed said that if their companies mandated, they would get the vaccine.

IF YOU CHOOSE TO MANDATE

In January, United Airlines CEO Scott Kirby was seriously considering making the vaccine mandatory for the company’s 60,000-plus employees. For an airline, whose workers are considered essential and whose mission is to transport consumers safely between far-flung locations, such a decision could clearly be in line with their company’s long-standing culture that prioritizes safety. It’s also arguably the best thing for United’s various stakeholders, given that widespread vaccination is the one thing that will revive air travel and restore the billions of dollars in losses airlines and their shareholders have suffered. For companies like United, the vaccine decision will be a test of values; you can’t, on the one hand, say safety is our number one priority and then, on the other, opt not to take an action that is known to reduce that risk. But it will also test employee loyalty; according to our research, 55 percent of employees surveyed said that if their companies mandated, they would get the vaccine, but 28 percent of U.S. workers feel strongly enough that if their company were to require the vaccine, they would consider leaving rather than comply. This is where communication becomes key. If you mandate, you need to sell your workforce on that decision. Explain in thorough and transparent detail the process you engaged, what inputs you used and how you arrived at that conclusion. Be explicit and thorough. If we as CEOs can do an effective-enough job presenting the evidence and our reasoning, we might sway some of those employees who would otherwise leave us to stick around. You may also decide to require vaccination for some employees but not others, or only in certain geographies; according to a survey by employment law firm Littler, 3 percent of companies planned to mandate the vaccine for certain workers in customer-facing roles. Given this

28% of U.S. workers feel strongly enough that if their company were to require the vaccine, they would consider leaving rather than comply.

of companies planned to mandate the vaccine for certain workers in customer-facing roles.

CHIEFEXECUTIVE.NET / SPRING 2021

LE A D ER S

has the potential to feel inequitable among workers, communication of your logic will be critical. IF YOU DON’T MANDATE

As CEO of SHRM, I won’t be mandating the vaccine because our culture is one that values individual accountability and trust in our employees. We don’t, for example, parse sick days at our company; rather we call it “open leave,” and employees are expected to use their judgment. Anyone who would abuse that Those of us who freedom wouldn’t last long at don’t mandate vaccination SHRM. So, leaving the choice need to work that much of vaccination up to our peoharder to strongly ple aligns with our cultural values. encourage employees to Those of us who don’t get it voluntarily. mandate vaccination need to work that much harder to strongly encourage employees to get it voluntarily. At a recent off-the-record roundtable SHRM held in partnership with Chief Executive, several CEOs of large multinationals shared thoughts on how they planned to encourage vaccination in lieu of a mandate. The following are among the suggestions mentioned:

you value personal accountability as a corporate value and that you are trusting employees to make decisions not only in their own interest but in the best interest of all employees, including those who are immunocompromised and vulnerable, as well as the communities in which they live. This should not be one and done but provide multiple, regular communications on the vaccine, its efficacy, its safety and the growing numbers of people who have been vaccinated without incident. • Help employees get the vaccine. In addition to paying for it, some companies have already set up internal sites to help match employees with local vaccine distribution site to make it easier for them to sign up for slots. Give them paid time off; Chobani has promised its roughly 2,200 employees that it will cover up to six hours of time for employees to get vaccinated. Walmart will be offering up to three days of paid leave for any employee experiencing vaccine side effects. JBS USA and Pilgrim’s have offered a $100 bonus to all employees who get inoculated and have actively partnered with state officials and local health departments to speed the process of making vaccines available to their 8,500 team members.

• Educate. Misinformation campaigns

Johnny C. Taylor, Jr. is president and CEO of the SHRM, the Society for Human Resource Management.

related to the vaccine abound, and chances are, at least some of your employees have been exposed to and influenced by them. There is real fear there, and it is vitally important to educate employees as to why they should want to get the vaccine and provide the data and science proving its safety. Make it more about them than the company—that is, emphasize that you care about their health and safety rather than the risk to the company. Also, given proof of vaccine or immunity will likely be required for travel and entry to certain events or places, play up the freedom that those who have been vaccinated will enjoy once life returns to normal. In other words, emphasize the carrot rather than the stick. • Communicate, communicate, communicate. Explain your reasons for not

mandating and let employees know that

12 / CHIEFEXECUTIVE.NET / SPRING 2021

• Be a role model. As CEO, you should make sure your employees know you received the vaccine and, as one CEO of a large movie theater chain put it, “Let them know you’re thrilled about it.” Have all of senior management do likewise. Ultimately, the decision about whether to mandate the vaccine is a deeply personal one for each organization. There is no right or wrong answer, and each CEO, with input from executive teams and boards, must make the best decision they can and the one most closely aligned with their unique mission and culture. You must then communicate the reasoning, so that employees know where you stand and what they can expect. You’ll never have 100 percent buy-in from every employee. But, as with all other strategic decisions, if the decision is made based on the company’s values and culture, it will prove the right one. CE

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LEADERS LAW BRIEF \ DANIEL FISHER

DANGEROUS TERRITORY

The Biden administration has an aggressive regulatory agenda, but a conservative Supreme Court may stand in the way.

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Court, where newly seated Justices, including Amy Coney Barrett and Neil Gorsuch, have a record of questioning the power of the administrative state. Two legal doctrines pose a particular threat to the Biden administration’s ambitions: Chevron deference and the non-delegation doctrine. Chevron deference takes its name from a landmark case in which the Supreme Court decided courts should let administrative agencies, not judges, interpret ambiguous federal laws. Conservatives have long criticized the practice, and Justice Gorsuch wrote a much-noted critique of Chevron as an appellate judge. The non-delegation doctrine has been largely dormant since the 1920s but might be revived by a conservative court if the right case comes along. It holds that Congress can only hand so much authority to administrative agencies—how much, nobody knows. But the more aggressively an agency tries to remake large parts of the economy, the more it risks a judicial brushback, says Thomas Lorenzen, a partner with Crowell & Moring and former Justice Dept. environmental lawyer. “I expect the administration is going to try to be aggressive but also to tread cautiously so they don’t provoke the Supreme Court into reviving that non-delegation doctrine or gutting Chevron deference,” Lorenzen says. “That would really put the brakes on the administrative state.” What that means in practice, Lorenzen says, is that instead of taking a radical step like declaring CO2 a hazardous pollutant, the administration will likely use its discretion and commitment to environmental justice to focus on minority neighborhoods that have felt outsized impacts from pollution and other industrial activities. “They’re going to be targeting disadvantaged communities and the facilities in them,” Lorenzen says. For businesses, he said, that raises an important question: “Ask yourself: How has that community addressed the effects of your business?” CE

REUTERS / KEVIN LAMARQUE - STOCK.ADOBE.COM

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

ON HIS FIRST DAY IN OFFICE, President Biden laid out an ambitious regulatory agenda that was the mirror image of his predecessor’s hands-off, laissez-faire approach. Climate change? The Environmental Protection Agency will make it a top priority, including tough new emissions rules and even support for litigation against fossil-fuel companies. Racial equity? The Justice Department will work with other executive agencies to root out inequality in every corner of the economy. The cost of regulation? No longer a big deal, apparently, as Biden immediately revoked a Trump executive order requiring agencies to spell out how much new regulations are expected to cost companies forced to comply with them. Elections have consequences. But even the President faces limits on what he can accomplish by regulatory fiat alone. The courts have a say, and if we learned anything from the tumultuous Trump years, judges aren’t shy about shutting down executive actions that they think violate the law. They’re especially persnickety about sudden, 180-degree changes that aren’t supported by what they consider adequate reasoning or evidence, such as President Trump’s immigration policies or a late-breaking order he issued prohibiting employers from using racial-sensitivity training classes with “divisive” content. The Biden Administration may not encounter such strong judicial headwinds. But if White House officials are smart— and they undoubtedly are—they will tread carefully, as they try to implement sweeping changes in how the government regulates employers, financial markets and, especially, the environment. If they are too aggressive, they may wind up before a solidly conservative U.S. Supreme

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LE AD ERS TRANSFORMATION \ PATRICK LENCIONI

LONELINESS IS NOT AN OPTION

You’ve got to be able to talk to someone— but who?

16 / CHIEFEXECUTIVE.NET / SPRING 2021

Boards exist to provide high-level guidance to CEOs and to prevent them from egregious errors. They are not meant to provide the kind of affirmation, coaching or approval that a manager does. That doesn’t take away from the fact that CEOs deserve support and need to find it somewhere. Just not there. The next most likely place a CEO looks for appreciation is at home. This makes sense. A spouse might seem a healthy place for a leader to turn for the kind of informed approval a manager would normally provide. But even the most involved spouse can’t adequately understand the depth of a CEO’s accomplishments and challenges without being part of the day-to-day activities of work. At best, they can be a sounding board or a sympathetic ear. Which leads to the worst thing that some leaders do when they lack appreciation at work and don’t get it from their spouse: They get involved in inappropriate intimate relationships with an employee. So many affairs take place, I’m convinced, because CEOs simply want to be valued and consoled by someone who understands what he or she is going through at work. The damage of these affairs, on organizations and families, is obvious. There is only one place where chief executives can and should go to avoid the loneliness that is a big part of their job: their leadership team. Now, I am fully aware of the problems associated with looking for support from team members who are also subordinates. It can be dangerous for a CEO to seek affirmation from the very people he or she might one day have to fire. I get that. But it’s doable, with the proper mix of vulnerability, authority and maturity. When CEOs build real, deep, vulnerability-based trust with team members and understand the different contexts of conversations they are having, they can get the support they need while maintaining the authority their role requires. And even if it presents occasional problems and challenges along the way, it’s a far better tightrope to walk than trying to earn the approval and consent of a board chair or a lone sympathetic employee. CE

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Patrick Lencioni, president of The Table Group, is the author of 12 business books, including The Five Dysfunctions of a Team.

YOU’VE HEARD IT BEFORE. “Leadership is lonely.” And while few people have great sympathy for executives who get paid good money for running an organization, loneliness is still loneliness, and it causes serious harm to leaders, the organizations they serve and the people in their lives. What is the primary cause of this? For most, it comes down to having no real source of encouragement and appreciation for what they do. Yes, CEOs are often surrounded by assistants and subordinates who provide them with gratitude and praise. Good leaders know that this kind of attention is often shallow and insincere. But what about the attention that leaders get from customers, vendors, consultants, even the media? Praise from relative strangers does not reduce loneliness, and in many cases, actually exacerbates it. Ask most celebrities. What CEOs want and need is specific and genuine appreciation—and correction—from people they care about and admire. Unfortunately, chief executives have no manager and are deprived of this. As bad as that may be, what may be worse is that so many resort to doing what that old country music song says: looking for love in all the wrong places. One of those places is the boardroom. Too many CEOs I’ve known seek approval and appreciation from the board of directors (often, the chairman). This makes sense because after working for managers throughout their careers, the board seems like the next best thing to a boss—but the board is not a CEO’s boss. Turning to the board for affirmation is like the head coach of a football team wanting the team owner to approve the plays he calls on the field. Any good team owner will be more interested in the results—winning games—than in the day-to-day decisions he makes to get there. And if the team doesn’t win, the owner will still fire the coach, regardless of whether he did things the way the owner might have wanted.

LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD

TRANSITION TIME

Ready to retire? Go gracefully— and find something else to do.

18 / CHIEFEXECUTIVE.NET / SPRING 2021

retiring from DuPont, went on to lead Carbon, a privately held 3D printing company, and join the boards of Dell, Amgen and Goldman Sachs. Others, including Goldman Sachs’s Lloyd Blankfein, Amazon’s Jeff Bezos and Disney’s Bob Iger, remained engaged by serving as chair or executive chair while taking care not to undermine their CEO successors. There are several key elements of making this transition work well: Start planning for succession as soon as you become CEO. Frequently, CEOs are

afraid that they’ll be seen as “lame ducks” with diminished authority if successors are groomed on the inside or available on the outside. That anxiety is misplaced and can lead to 11th-hour panicky transitions where no parties are properly prepared. Resist the temptation to interfere by being pulled back into your old position.

The politics and personalities of past lieutenants and customers can lure you back into intruding on your successors’ domain. Don’t be afraid to try bold fresh adventures. Too often, CEOs are afraid they will

move into a new role outside their sphere of past success and experience humiliating perceived failure. Fear not: Hitting a pothole exploring a new road will not diminish your past record. Respect the independent schedule of your spouse or partner at home. He or she may be engaged in major professional or community endeavors and not in alignment with your newfound freedom for recreation and travel. Be ready to say no thanks. David Rockefeller once told me that after stepping down as CEO of Chase Manhattan, he lost the excuse to politely decline invitations due to work obligations. As a result, he was chronically overcommitted, actually serving on 50 nonprofit boards, most of which he chaired! CE

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Jeffrey Sonnenfeld is senior associate dean, leadership studies, Lester Crown professor in management practice at Yale School of Management, president of the Yale Chief Executive Leadership Institute and author of The Hero’s Farewell. Follow him on Twitter @JeffSonnenfeld.

THE HAUNTING CHORUS “No Time Left for You” from the 1969 hit song by The Guess Who offers a cautionary note to baby boomer CEOs approaching retirement age and contemplating stepping out of office. Ambitious people, they energetically climbed career ladders, calibrating the time it took to reach positions of great influence along the way. Now, especially given the post-pandemic appreciation of life’s fragility, they’re counting the reverse—how little time remains in life to do something more. While some eagerly trade the daily grind for the prospect of more leisure time in retirement, CEOs, like musicians, artists, actors, physicians and teachers, often find work gratifying and a source of their identity. Today’s baby boomer CEOs are leaving office with confidence, ideas and enthusiasm, ready to assume new life missions unencumbered by the obligations of past roles. In discussing his new book, How to Avoid a Climate Disaster, Bill Gates admits, “Until 2000, for the first 25 years of my career, I thought only about software development.” However, he anointed a successor in 2000 and created The Bill and Melinda Gates Foundation, the largest private foundation in the world, with more than $50 billion in assets. His time is now devoted to its primary goals, which include addressing climate change, enhancing healthcare, reducing extreme poverty across the globe and expanding educational opportunities and access to IT in the U.S. This is hardly an outlier example. When Indra Nooyi stepped down as PepsiCo’s highly effective CEO, she found ways to apply her leadership theme of “performance with purpose.” She took on economic development and other public initiatives in her home state of Connecticut, while also joining major boards ranging from Amazon’s to MIT’s. When IBM’s Ginni Rometty and Merck’s Ken Frazier exited as triumphant CEOs, they launched the OneTen initiative as co-chairs of a coalition of 35 major firms committing to creating one million top jobs for Black Americans in the next decade. Ellen Kullman, after

T H O U G H T L E A D ER SH I P PR OV I D ED BY R H O D E ISL A N D

RHODE ISLAND

Rolls Out the Welcome Mat

CEOs are discovering big appeal in the country’s smallest state.

RHODE ISLAND IS PIVOTING from a business-friendly pandemic response that stood out in the Northeast to a business-friendly future built on the Ocean State’s young talent pool, geographic advantages, innovation infrastructure and public-private partnership ethos that values prosperity and progress as well as equity. It’s the smallest state, but that stature has helped business and government leaders in Rhode Island focus effectively on leveraging the state’s strengths for the new-era economy. Getting each major player “in the room” at once in the capital city of Providence—from corporate, political, labor and not-for-profit worlds—happens frequently and facilitates strategic agreement and certainty that helped the state leap by three spots in Chief Executive’s “Best & Worst States for Business” for 2021. “We’re fortunate to have a real strong foundation that’s been set over the last number of years to embrace growth for businesses in our state and embrace people who might want to settle their businesses in Rhode Island,” says Governor Dan McKee, who served for six years as lieutenant governor before succeeding former Governor Gina Raimondo, whom President Joe Biden in January appointed as U.S. Commerce Secretary. “As a small-business owner myself and former mayor,” McKee says, “I know the value of a strong economy here and understand these factors.” Rhode Island set the stage for robust growth in the ongoing recovery with its lack of restraint on companies amid Covid and agreement with them on health and safety protocols. “As a result, we believe with justification that the industrial and construction sectors are increasingly aware of Rhode Island’s affinity for them,” says Stefan Pryor, the state’s commerce secretary. In the U.S. Northeast, as the pandemic wanes, Providence has become one of the

TOP: A five-turbine array located off of Block Island is America’s pioneer effort at offshore wind energy power. Above: District Hall Providence offers a free home where innovators and entrepreneurs can collaborate.

region’s few metro areas attracting rather than losing millennials on a net basis, a distinction that Rhode Island leaders expect to grow as offices repopulate. “Rhode Island is fantastically placed between Boston and New York, and if you’re only going into the office two days a week from now on, there’s even more opportunity for workers to enjoy the fantastic quality of life here, much lower prices and our beauty,” says Tom Giordano, executive director of the Partnership for Rhode Island. The most ambitious and defining effort by Rhode Island to take advantage of its attributes is to build on the momentum of the Block Island Wind Farm. The existing five-turbine array is America’s first foray into offshore generation of wind power, but it’s only the start of a planned 50-turbine constellation expected to help provide 100 percent of Rhode Island’s electricity needs by 2030. The state is supporting the effort with a new innovation center in Providence that already hosts eight wind-related enterprises. The state’s push behind wind power is a pillar of “one of the most flourishing ‘blue’ economies and innovation economies in the country,” says David Hardy, CEO of Ørsted U.S., part of the Danish company that is operating and expanding the Block Island Wind Farm. “Rhode Island has a strong commitment to a renewable

energy future.” Josh Brumberger believes the progress of wind power “shows Rhode Island’s capability of leading around really complex issues because of our unique ability to get all the stakeholders from the public and private sectors together to move big, ambitious projects forward.” The CEO of Providence-based Utilidata, a provider of software for operating utilities, says the wind farm “represents the possible here, and doing it around something as important as climate-related initiatives is all the better.” The “possible” in Rhode Island depends heavily on recognition by business and political leaders that the state must continually wage a war for talent that remains in short supply amid the national economic recovery. The state “makes higher education and workforce development a priority,” says Hardy, specifically citing strong university programs in environmental and marine affairs and a “close partnership” with Rhode Island’s building trades that is “crucial to securing the skilled labor we’ll need to build our wind farms.” The state also has a qualified-jobs incentive program that rebates companies a portion of the personal income taxes they generate by creating jobs in Rhode Island, and the Rebuild Rhode Island tax credit, in which the state co-invests in companies’ development and overhaul of physical facilities such as manufacturing plants and mixed-use complexes. An extra incentive? Rhode Island’s Wavemaker Fellowship, which enables graduates of college STEM and design programs to shed much or all of their student debt by committing themselves to jobs in the state. “It’s another carrot our companies can extend in order to attract and retain talent,” Governor McKee says.

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Is Your Global Footprint Aligned with Your Corporate Diversity Goals? By David Carroll and Matt Highfield

THE YEAR 2020 saw a significant elevation of Diversity, Equity, and Inclusion (DEI) in our collective consciousness. The death of George Floyd and calls for racial justice around the world garnered global attention and brought DEI to the forefront of national and international dialogue. While conversations about injustice are not a new phenomenon, companies are increasingly seeing employees demand a tangible commitment to DEI, and leaders are responding to the escalating expectations in myriad ways. Salesforce announced a new Racial Equality and Justice task force to inform how best to drive racial equality in the workplace.1 Mondelēz International committed to double Black representation in U.S. management by 2024.2 And Deloitte, among other commitments outlined in its DEI Transparency Report, pledged to increase the number of Black and Hispanic/Latinx professionals in its U.S. workforce by 50% and increase female representation to 45% by 2025.3 These commitments appear to deliver benefits far beyond the support of social justice. Research has proven the financial business case for a diverse workforce as well: one study by the Wall Street Journal found the 20 most diverse S&P 500 companies had a 50% higher operating profit margin and 138% higher annual share performance compared to the lowest-ranking companies.4 So, what steps can leaders take to enhance DEI within their organizations? Unfortunately, there is no single playbook and the solutions available to organizations differ widely. Deloitte’s 2020 report Support Your Black Workforce, Now: Practical Ideas for Organizations and Leaders to Take Action describes a framework and specific steps companies can take that may benefit Black and other marginalized communities, including: building antiracism as a workforce capability, emphasizing and expanding a culture of allyship, and revisiting and evaluating internal policies, processes, and practices through a lens of racial equity. As companies utilize these and other approaches to develop a workforce reflective of their customer base and one that responds to the demands of their incumbent and prospective employees, they often fail to consider whether their physical footprint of locations helps or hinders efforts to access a diverse talent pool. The evidence pointing towards superior organizational performance, as well as the demands made by existing employees, make access to and embrace of diverse populations pivotal to success. With a shift in focus, and in

order to deliver on DEI commitments, those charged with corporate location selection are placing increasing emphasis on the availability of diverse talent and other DEI-related indicators when making location decisions. A recent location decision made by a well-known Life Sciences client looking to expand their U.S. service delivery footprint was ultimately heavily influenced by demographic diversity and both an empirical and perceived ease of attracting a diverse workforce in the selected location. Another Life Sciences giant considered diversity at the location selection outset and committed to designate DEI indicators as a key strategic factor in their decisionmaking process. This resulted in the elimination of locations— irrespective of other attractive cost, talent, and operating conditions factors—that were not aligned with their DEI objectives and commitments. For any organization pursuing a footprint expansion, there are three location-specific DEI considerations that must be assessed: demographics and representation, legislation related to equality, and public opinion. Demographics and Representation: An organization cannot practically broaden the diversity of its workforce if the availability of diverse talent is either in short supply or not present at all locally. Publicly available data such as employment figures by race and gender provide a baseline by which the location strategist can compare candidate locations. The presence of under-represented groups in local and state government leadership positions can be examined. Additionally, resources and insight are available from relevant publications such as the Human Rights Campaign Foundation’s Municipal Equality Index5 to determine how cities perform on equality and inclusivity. Legislation Related to Equality: Location decisions increasingly include an assessment of legislative leanings on equality, with companies viewing the roll back of minority, women’s and LGBTQ+ rights as an elimination factor. Investment in markets considered less progressive or even hostile to minority rights is receiving growing scrutiny among U.S. and global workforces, with leaders being held accountable for investments in markets not well aligned with the company’s DEI commitments. Laws and regulations will depend on whether an organization is expanding domestically or internationally. For example, in June 2020 the U.S. Supreme Court ruled that people in all states can seek recourse for employment discrimination based on sexual orientation and gender identity; however, at the time of this

writing there remain 20 states without any explicit prohibitions for such discrimination.6 Globally, maintaining commitments to the well-being and recruitment of diverse populations can be more challenging. Only 81 (42%) of the United Nations Member States protect employees against discrimination based on sexual orientation, according to a 2020 report from the International Lesbian, Gay, Bisexual, Trans and Intersex Association (ILGA).7 To promote gender equality, leaders are comparing locations on issues such as reproductive rights, employment restrictions, property rights, and maternity leave regulations. The World Bank’s Women, Business and the Law 2021 study, which measures laws that affect women’s economic opportunity in 190 economies,8 finds that only 10 countries score a 100/100, with women on an equal legal standing with men across all areas measured. With a score of 91.3, the U.S. ranks 37th, tied with Albania, Cyprus, and Taiwan. Public Opinion: Indicators relating to public sentiment on diversity and issues that impact diversity are available, valuable, and are increasingly incorporated in the location selection process. Understanding and managing workforces in countries whose value set and approach to diversity may differ from those at HQ is a complex, dynamic, but ultimately critical requirement. In 2019, the Pew Research Center published a report entitled A Changing World: Global Views on Diversity, Gender Equality, Family Life and the Importance of Religion. The results from 27 countries show that while people generally favor more gender equality (64% of respondents), there is less support in favor of increased ethnic, religious, and racial diversity (45% of respondents). However, several countries, such as Indonesia and South Korea, are strongly in favor of both. In another report, Around the World, More Say Immigrants Are a Strength Than a Burden, the Pew Research Center found that in top migrant destination countries, the public generally views immigrants as a strength. But in several others, the majority viewed

immigrants as a burden. These sentiments will not only impact the ability to source diverse and talented colleagues, but also create friction with progressively strong and public commitments by companies to not only diversity, but human rights. While no one factor should drive any location decision, the three elements described here represent trade-offs that should be considered during the site selection process. True understanding of a location’s ability to support diversity and equality will result from appropriate due diligence, both at the desktop level and in-market. Corporate leaders are increasingly being asked the questions that thoughtful location selection and due diligence are designed to answer. Every organization will differ in its approach to improving DEI. Some companies will emphasize training and education programs. Others will develop strategies to combat unconscious bias in hiring and promotion processes. Many corporations will pledge significant funds to support organizations promoting racial justice and inclusion. A growing number of companies are embracing all these levers. What most will agree on is that there remains much work to be done. By placing greater emphasis on establishing operations in locations that allow them to source and provide opportunity to demographically diverse populations, and whose citizens and elected officials advocate for equality, organizations can position themselves to meet their own diversity goals and set an example for others looking to effect positive change. 1. https://www.salesforce.com/news/stories/taking-action-for-racial-equality-and-justice 2. https://ir.mondelezinternational.com/news-releases/news-release-details/mondelezinternational-announces-multi-year-commitment-advance 3. https://www2.deloitte.com/us/en/pages/about-deloitte/articles/moving-forward-together. html?icid=dei2021_button_our_way_forward 4. https://www.wsj.com/articles/the-business-case-for-more-diversity-11572091200 5. https://www.hrc.org/resources/municipal-equality-index 6. https://www.lgbtmap.org/equality-maps/employment_non_discrimination_laws 7. https://ilga.org/state-sponsored-homophobia-report-2020-global-legislation-overview 8. https://wbl.worldbank.org/en/wbl

ABOUT THE AUTHORS: David Carroll (dacarroll@deloitte.com) is a Manager in the Location Strategy practice at Deloitte Consulting LLP. Matt Highfield (mahighfield@deloitte.com) is a Managing Director and leads Deloitte Consulting’s Location Strategy practice. ABOUT DELOITTE: As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2021 Deloitte Development LLC. All rights reserved.

S P EC IA L R E PORT: G ROW TH

Kara Goldin CEO, Hint Water

IT’S GROW TIME! Ready for the post-Covid boom? Savvy CEOs share their strategies for making the most of a magic moment. BY DALE BUSS

KARA GOLDIN SUGGESTS ALL SORTS OF HACKS FOR GROWTH, but the No. 1 imperative for her fast-rising company, Hint, is this: follow the customer. It isn’t rocket science, but heeding that axiom helped Goldin explode sales by roughly 50 percent last year despite the pandemic, propelling her brand of nutritionally enhanced waters and other products into a $225 million enterprise—and positioning it for bigger gains in the months and years ahead. “We focus on the customer, and luckily, when you have a relationship with them, that actually tells you how to service them,” says Goldin, who helped develop AOL’s e-commerce business, then ventured out on her own to pioneer the new beverage segment of unsweetened waters flavored with fruit oils and other essences before Coca-Cola and other beverage giants could move into it. “You need to figure out where their heads are, and that will tell you the best way to grow your business. We’re going to keep going on this journey with the customer, and that’s why 2021 will be successful for us, too.” Welcome to the post-pandemic global economy, likely one of the most exciting and explosive eras of expansion since the end of WWII. As vaccines do their job and billions of customers the world over emerge from Covid-induced hibernation, all signs are go for a big year—and beyond—in nearly every industry. How to make the most of this time? Chief Executive reached out to CEOs at companies of every size and shape for ideas. For Goldin, staying on top of what retailers and consumers want next from her San Francisco-based company is the alpha and omega. She widened the Hint product lineup by branching out into items like lip balm and broadened distribution through big store accounts. Most important, she built a dedicated e-commerce platform for Hint that accounts for about half the company’s sales and keeps it intimately responsive to what its shoppers want. Building Hint to this point required savvy, boldness, perseverance and more in the 15 years since the company’s start. As a seasoned executive, Goldin knew how to hunt for new opportunities. Like so many food entrepreneurs, her genius came in recognizing she couldn’t satisfy the dietary needs of her young family with existing products. Ditching her daily Diet Coke habit, Goldin began experimenting by sweetening plain waters with fruit juice. She called a Coca-Cola executive out of the blue who told her that her product couldn’t be

PHOTO: BRIAN FLAHERT Y

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commercialized because it needed preservatives— one thing Goldin wasn’t going to include—to solve distribution and shelf-life challenges. (He called her “sweetie”—but that’s another story.) “Sweet was all they knew, and sweet drinks were all they wanted to sell,” Goldin wrote in her autobiography, Undaunted: Overcoming Doubts + Doubters. “That was our big and very real advantage over” Coke and other beverage titans. “We had the commitment, the understanding and the passion for a new approach. If only we could solve the technical and business problems.” Goldin kept iterating, extending shelf life, creating intriguing flavors such as honeydew hibiscus, adding a kids’ line, landing endorsements from celebrities such as Miley Cyrus and inking a co-branding deal with Disney. Coke and others have muscled into Hint’s category, but Goldin kept growing, to about $150 million in annual revenues before the pandemic. One big reason is she continues to take Hint personally. For example, early on during last year’s pandemic, Goldin headed into a Marin County Target one evening and executed a corporate duty she’d left behind a decade ago: merchandising. “I wanted to show my executive team that this is what should be done,” says Goldin. “I should lead by example—not lecture people on what they should ultimately be doing. They appreciated that. And then they were like, ‘If Kara is doing that, maybe we should be doing that, too.’” Goldin shared more of her growth tactics with Chief Executive:

In 2014, for example, Starbucks began to nudge Hint out of its coolers in favor of its own branded products. Goldin took the snub as an opportunity to ramp up experimentation on Amazon, and Hint’s quick success—in a product category whose bulkiness had held back online sales—was a revelation. Covid, too, brought a stunning blow to the company, abruptly removing the 15 percent of revenues that came through sales to corporate campuses. Pandemic protections also robbed Hint of being able to sponsor and sample at events. “We made some really fast bets early on by reallocating budgets” to store and online marketing, Goldin says. “We also began sending our event-sales teams into merchandising in stores.” Talk, talk, talk with customers: Early in Hint’s expansion into e-commerce, Goldin embraced the idea of creating a drinkhint.com site and turning it, not Amazon, into the brand’s main sales platform. Creating intensely direct individual relationships has more than compensated because it has given Hint access to and control of customer data and an instant feedback mechanism. “If you don’t have that kind of communication with your customers, you’re in a tough spot,” Goldin says. “For 2021, we’re just staying connected with this consumer and making them feel and recognize that our focus, like theirs, is health.”

“We’re going to keep going on this journey with the customer, and that’s why 2021 will be successful for us, too.”

Source for resilience: Goldin built Hint’s supply chain around a handful of bottling plants sprinkled across the U.S., with an emphasis on automation to restrain costs. That network came in handy during Covid when a huge new potential customer, Costco Wholesale, wanted to pick up Hint as a replacement for other water brands that suffered from foreign sourcing entanglements. “We’d had some discussions over the years as to whether we could save a few bucks by sourcing differently, but we thought it might not be worth it,” Goldin says. “Even if it’s a little more expensive to source everything in the U.S., it’s just easier to maintain that. And we wouldn’t have gotten the Costco deal without it.” Overcompensate for setbacks: Creating a new

segment didn’t insulate Hint from big competitors.

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Follow your gut: Viewing the role of Hint holistical-

ly rather than by category ratified difficult decisions for Goldin, such as jumping into better-foryou lip balm, sunscreens and hand sanitizers. Her personal brush with skin cancer added narrative impetus to such moves. “Does our consumer just care about water?” she says. “We see a person who’s yearning to be healthier but finding it really hard. And they ask us literally on a daily basis: What’s the next product that you’re developing? So, we also educate our retailer customers on what these consumers might want.” Sweat the details (all of them): In many cases, they move from marginal to salient to decisive. “At points I’ve wondered if I really need to pay attention to all the details because I’m a little bit paranoid,” Goldin says. “But everything you do is important when you’re operating a company. And it’s a lesson for our teams as well, that everything can drive the bottom line.”

Here’s what several CEOs tell Chief Executive about their growth strategies for 2021 and beyond: ENERGY

GRABBING CHEAP ASSETS Jordan Jayson, CEO U.S. Energy Development / Arlington, Texas “We’re a privately held oil-and-gas developer that has been adapting to the plunge and subsequent slow recovery in prices. We’re a small-cap player, so there is great potential for acquisitions that are accretive. As the green wave flows through energy, our view is that upstream oil and gas will still be a necessity for at least 10 to 15 years. “That doesn’t mean we’re not aware of the transition and looking for renewable and ESG-related opportunities. But as some of the larger players are beginning to shed some of their non-core assets in North America, and merging portfolios, the assets that are small in their minds are much different in our minds. “As we adjust, we’re very mindful of the downside and getting our team to talk about it. We adjust to the rhetoric and the huge price swings by focusing half our discussion on what could go wrong. We still need to protect our base so we can explore and innovate and look for new opportunities.”

MANUFACTURING

SUPPLYING DEMAND Brian Morrison, CEO Terraboost / Bolingbrook, Illinois “We had a media company that runs a network of wellness kiosks in retailers, which dispense wipes and provide advertising to clients such as Eli Lilly, PayPal, local hospitals and insurance plans. When Covid happened, consumption of wipes went up by 20X. Suddenly, we became a $100 million company by making and selling wipes. “We had contracted out the manufacture of our wipes in China, but we wanted to capitalize on the demand. So, we’re investing $25 million in a new local plant that will nearly triple our capacity. We are providing 110 different kinds of advertising kiosks that dispense wipes and expanding contract manufacturing. We have the goal of making 90 percent of our wipes in America by the end of this year, from about 60 percent now. “It’s a little bit crazy, but we’re riding this wave and trying to have a good blend of customers and contracts to sustain growth. Plus, demand for wipes isn’t going away, even after all the vaccines are distributed.”

WHAT A DISRUPTOR DOES DIFFERENTLY Explosive growth isn’t magic, but it is hard. Lessons from DocuSign, one of the hottest companies in tech. When Dan Springer joined DocuSign as CEO four years ago, the company’s solution for obtaining signatures on legal documents was gaining momentum as businesses of all sizes seized the opportunity to smooth what is often an arduous process. Realizing its potential, he knew, would mean getting the right people in the right roles— both within the company and on its board. “It was a matter of going through area by area and thinking about what the future leadership needed to be, and bringing in the folks that we thought could get us to that next level,” he says. In recasting the board, Springer started by bringing in Maggie Wilderotter, former CEO of Frontier Communications, as chairman. “Maggie and I pretty much transformed our 12-person, all-white-male board into a nine-person board that is about one-third women and one-third people of color,” he explains. “As with the management team, it wasn’t that we were trying to get rid of people, it was about the leadership capability and experience we needed for the future.” THE BOARD ADVANTAGE When Covid-19 sent demand skyrocketing as lockdowns began sweeping the globe, Wilderotter and a strong board aligned behind the company’s strategy were just the edge Springer needed to avoid the stumbles that rapid growth often brings. “One of the most important things she’s done for me as a partner here was helping me to see the company not as we are today, or even in the coming year, but multiple years out,” Springer says. “We’re growing so fast that it’s easy to focus on just next year versus really thinking through the challenge of having people with the leadership experience for the company we were becoming—a very large public software company.” Springer credits annual strategy sessions with the board and management for laying the groundwork to build up to 40 percent annual growth rate and sustain it during a pandemic. “When something like Covid hit, we were ready because we understood what our long-term plan was,” he explains. “That made it easy because we just accelerated our playbook. It’s the preparation and the alignment of the board in advance that sets you up to be successful when good things, bad things or challenging things arise.” —Jennifer Pellet

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ONLINE SERVICES

MAXIMIZING TECHNOLOGY OPPORTUNITIES Guru Gowrappan, CEO Verizon Media Group / New York City “Digitization of transactions during Covid accelerated our transformation as the company that runs many Internet platforms including Yahoo. We’re a mission-led company building on three pillars: trusted content, connections built one-on-one with consumers and transactions through e-commerce, such as sports betting and other things that close the loop. “One thing that changed is that, in the Covid world, people haven’t been gathering for sports and events, so we launched Watch Together with the NFL, a co-viewing experience designed to innovate live events and give fans the ability to interact. On the ad side, we’ve grown connected TV and digital out-of-home a lot. “We think 5G connectivity will introduce another industrial revolution, and we’re already scaling up a lot of experiences in advertising and content. For example, we’ve got a Super Stadium app that gives iPhone users multiple camera angles for an NFL game, with no image latency. “We are also conscious that our content needs to be trusted. We don’t have any consumer-network ecosystem like Twitter, and we have strong policies that make sure none of our content providers are putting out fake news or fake ads.”

RECREATIONAL VEHICLES

BROADENING THE BRAND Bob Wheeler, CEO Airstream / Jackson Center, Ohio “We’ve seen a dramatic spike in our retail sales and wholesale orders, and we just continue to pile backlog on top of backlog. It stands at about a year now versus typically about 12 weeks. “But we want to grow our output in an intentional and controlled manner no faster than we can maintain and improve product quality. We also want to make sure that the new buyers who’ve come to us out of convenience then fall in love with the Airstream lifestyle, so they’ll become lifetime customers. We’re building the business for the next 10 or 20 years. “A key part of that is extending the brand to things that people have to go out and purchase for the RV experience, like outdoor furniture and grills and things for inside the Airstream. We’re curating great products for them to help them get through the process of buying what they need or what they don’t know they need yet. We’re also incubating other small brands that work with us. It’s all a brand-building tool we’re having great success with.”

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MEDICAL RECORDS

HIRING AT HOME Ray Berry, CEO Health Business Solutions / Fort Lauderdale, Florida “We help hospitals fix denied insurance claims and leave behind tools for them to do better. For a typical client, we would bring in 80 people and leave 20 behind. But Covid stopped that. “Fortunately, 10 years ago we had begun piloting a work-from-home solution. Hospitals did hate that because you don’t want people messing with medical records at home. But we’ve been able to lock all of that down so all of that processing occurs in a closely monitored central office. “And as costs came down from remote work, we passed those savings primarily on to clients. That was even after we voluntarily took a 25 percent fee reduction as hospital patient volumes went down. That wasn’t an unwise thing to do. “Work-from-home has opened the world to us in terms of hiring the best people to do their specialty from wherever. Now hospitals are giving us expanded duties. We’ve signed some new contracts and will likely double our revenues this year.”

RECREATION SERVICES

FRANCHISING TO ACCELERATE EXPANSION Chris McCuiston, Co-Founder and CEO, Goldfish Swim School / Troy, Michigan “We teach a life skill that practically every parent wants their kids to learn, so we didn’t have a lot of chinks in our armor outside a global pandemic. That was evident. Plus, the virus sent everyone outdoors, and bodies of water became more regular in everyone’s life. “We started franchising in 2018, allowing us to grow our brand through others and not tied to debt. Building one of our pool facilities requires as much as $2.5 million, so we can expand much faster this way. We also benefit as an organization from a bunch of different minds and personalities and experiences, making sure decisions are right for all of us. “After Covid, we created a less-expensive franchise that is suitable for the many smaller urban markets where we have interest from potential franchisees. But with the change of administration in Washington, we are wary of potential litigation from any changes to the joint-employer rule that would hold franchisors more liable for franchisees’ employees.”

CUSTOMER EXPERIENCE

SCALING FOR CUSTOMERS Chuck Sykes, CEO Sykes Enterprises / Tampa “We help our clients deliver good customer experiences to consumers, in centers for phone calls and email and chat and social media, with 55,000 employees operating out of 80 facilities in 21 countries. “We’d been preparing for the work-at-home revolution, and the pandemic accelerated that to where 72 percent of our employees were working from home at one point. No less than half of our employees will continue to work from home. “But we’re looking at growth also through creating microsites in smaller locations that might have 100 or even 50 seats instead of the 400 seats, with a training center and a cafeteria that are typical of today. We also are growing beyond our Fortune 1000 clientele by working with digitally enabled, hyper-growth startups where quality service is important to them.”

‘YOU’VE GOT TO GIVE YOUR PEOPLE PERMISSION’ If the pandemic made one thing clear for Cars.com CEO Alex Vetter, it was the power of empowerment. For a company that relies on online sales, there’s nothing quite like seeing your user volume drop to “virtually zero” overnight, says Alex Vetter, CEO of Cars.com, which operates front-end websites for 5,000 car dealers. That’s what the company saw happening with the announcement of shelter-at-home orders a year ago. “By the third city, we were staring at a situation where all of our user growth would potentially go to zero,” he recounts. But it wasn’t long before the company started to see user growth start to tick back up. Within a month, cities like Seattle were higher in traffic than they had been pre-pandemic. While the national picture was dire, it turned out people still needed to go places—and they didn’t want to do it by plane or mass transit. When states forbade local dealerships from staying open, Cars.com swung into action with an aggressive customer petition campaign for the sale and service of cars by technology. With its entire workforce shunted from their offices into working remotely, the company still managed to rally, says Vetter, who credits these traits for Cars.com’s resiliency: A SPIRIT OF PERPETUAL LEARNING. “If you’re not keeping your company sharp in trying and testing new things, you’re actually going to get old. We don’t ask everybody to justify every trial or every test. You’ve got to give people permission to know that they’re going to go down some roads that aren’t going to lead you anywhere—that will enable you to find some on-ramps that will accelerate your growth.” INTERVIEWING FOR COLLABORATORS. “In addition to growth-minded people willing to try new things, we interview for collaborators, people who had demonstrated teamwork. That’s the new organizational workforce mentality. I don’t want soloists. I need team players because that’s how share points are won.” EMPOWERMENT. “We encourage people to decide and do rather than seek approval, [especially during Covid]. We really wanted to unlock even our most junior front-line people to talk to customers and make split-second decisions about what to do. We wanted them to know that we had their backs.” INFORMATION FLOW. “In a crisis you just need to break down the formality. We didn’t want the standard cadence of getting together weekly, so we shortened everybody’s expectations by doing quick huddle check-ins and then letting people get back to work.” EMPATHY. “We were all dealing with a lot of personal challenges and uncertainty with our families. Being empathetic as a company about what our employees and our customers were going through was the prevailing characteristic that I think we demonstrated in customer actions and the way that we took care of our employees that kept us linked together as a team.” —Jennifer Pellet CHIEFEXECUTIVE.NET / SPRING 2021 / 27

TRAINING

HEALTHCARE TECHNOLOGY

CATERING TO THE LIVES OF DIGITAL NATIVES

REMOVING FRICTION EVERYWHERE

Doug Donovan, CEO Interplay Learning / Austin “We provide online and virtual-reality training for essential skilled trades. Manufacturing kept going during the pandemic, but companies saw the need for effective remote learning even of advanced skills. We had a 300 percent year-over-year sales increase. They’ve jumped over a fence, and they’re not going backward. “Companies have gone from complaining about the manufacturing-skills gap to fixing it themselves. We help them build that foundational workforce with tools that look and feel the way they’re working and living. They can try a VR or augmented-reality device that allows them to actually experience what it might be like to work on a cooling tower on a roof. “We’re going after this market now by marketing a value proposition in true digital transformation in areas where they haven’t done it. We publish white papers and case studies. And on the technical side, there have been some breakthroughs in VR hardware and distribution so that we’re going to start dropping $300 headsets as a marketing tool. We don’t need to explain the IT to them anymore— we just send customers these headsets for HVAC or electrical training.”

AUTONOMOUS VEHICLES

MAKING DELIVERY CHEAPER Matt Johnson-Roberson, CEO Refraction AI / Ann Arbor, Michigan “Development in our space and in our town is expanding so much that there are humorously awkward moments where we pull up at an intersection and there are a couple of other companies’ experimental AVs there. But key to our growth is the fact that there are usually two to three people in those vehicles; ours are human-less. “From day one we decided we weren’t going to be carrying people but goods and that we were going to focus on the last mile for delivery, because our AVs were going to go slower than a full-size car and be lighter and smaller. The most frequently transported good in our 25 vehicles in Ann Arbor is food. “With a flat-fee delivery of $7.50 for as many as a half-dozen bags of groceries, we’re challenging the dynamics of what third-party deliverers like DoorDash do, where their chunk of the order can be fairly expensive for a small merchant. We’re looking forward to expanding our model to another city over the next year.”

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Brent Lang, CEO Vocera / San Jose, California “Our systems allow voice communications among healthcare workers and with patients. With Covid, they’ve allowed people to communicate without any risk of infection. So, we’ve leaned into this situation and are investing for growth. The phrase inside our company is, ‘Accelerating out of the turn.’ “We see an opportunity to grow market share by investing in new products, such as one that allows patients to communicate with family members from the hospital, which was invented for the operating-room environment for kids’ surgeries. In Covid times, it’s become even more relevant because of limitations on visitors. “Meanwhile, many hospital IT departments won’t even be on the hospital campus, so our ability to work with them virtually becomes a competitive advantage going forward.” “Some companies have retreated, but we want to invest in this transition. So, we have poured resources into new-product development and into a virtualization of our marketing organization. We’ve built a virtual ‘trade show’ that potential customers can visit online instead of at a convention center.”

MARKETING

BUILDING MUSCLE UNDER OUR ROOF Terry Kroeger, CEO Smith Kroeger / Omaha “We’ve spent a couple of years building the tools that a marketing agency can use to help companies grow their own businesses. Covid put the brakes on some of the pitching, but the infrastructure we’ve built—with digital, strategic and video capabilities—makes us a little different than our competitors. “For instance, we’ve taken all of our digital production in-house, making us cheaper and faster for clients. We built a state-of-the-art video studio that includes 4K cameras, sound baffling and a lot of other stuff. We’ve probably invested $100,000 in the last 12 months on capital items and have added five positions to a staff that was 20 people.”

THE $100 MILLION COSTCO TRIP Eyes—and hands—on every aspect of the business let California startup CalChef Foods execute on a very big idea they got in the aisles of a big-box store. A few years ago, Kevin McCray and Dan Costa decided to build a manufacturing plant for their fledgling meal-kit business in Stockton, jettisoning a copacker and taking more control over production of their Chef’s Menu line of products for foodservice and supermarket retailers. Good thing, because today the co-founders of CalChef Foods are already stressing their 45,000-square-foot factory to its seams after pivoting to a new product line whose growth is exploding exponentially. The new line is Kevin’s Natural Foods, a collection of premium, sliced, vacuum-packed and refrigerated meat entrees. Sales of the brand boomed—going from $4.5 million in 2019 to $48 million last year—and are projected to reach $100 million this year. McCray, a serial food-marketing executive, and Costa, a serial entrepreneur, gained the pivotal consumer insight that led them to become stalwarts of affordable premium products while scouting refrigerators at Costco stores. McCray noticed how the chain overall was “elevating refrigerated offerings” but that “there wasn’t a lot of innovation in that category.” Looking specifically at sliced-meat offerings in pouches, he saw commercial possibilities for meats prepared using the French cooking method, sous-vide, in which meats, vegetables and sauces are vacuum-packed and then cooked at home. Quickly, the two developed their concept for Kevin’s Natural Foods, and Costco buyers leapt on the opportunity in 2019, placing an order for lemongrass chicken for one of the chain’s eight regions. CalChef priced the first Kevin’s Natural Foods entrée at $13.99 for a 32-ounce pouch, essentially slapping a huge affordable price point on a product packaged as premium. Soon, Whole Foods and major regional supermarket retailers were signing on for Kevin’s Naturals, which expanded its product line with 16-ounce packages that the stores could retail for a reasonable $9.99. “We found out later that a lot of [store] buyers had been asking for something new in the refrigerated space, and they were willing to take a chance on a young brand,” McCray says. Just as key to the company’s success building a nine-figure brand within a year was investment in sous-vide machinery to handle expansion of demand and a relentless focus on sourcing, both to maintain the company’s pledge to use only highly vetted ingredients as well as to keep costs in check to maintain “democratic” pricing at retail. “A lot of companies couldn’t make these products profitably,” McCray says. “We couldn’t either if we didn’t take every penny of costs out of the system.” CE

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S P EC IA L RE PORT: G ROW TH

ARE YOU THE CEO

YOU NEED TO BE NOW? The biggest risk—and opportunity—in your business today? Your leadership, says Ram Charan, one of the world’s top CEO coaches. A guide to what you and your team must do to grab competitive advantage and exponential growth in a digital age. BY RAM CHARAN

COMPANIES ARE CREATED, EXPANDED, ALLOWED TO WITHER AND DIE OR GET REVIVED BY THEIR LEADERS. Walmart started to digitize in 2001, but those efforts didn’t go anywhere until Doug McMillon became CEO in 2014. Microsoft was treading water until Satya Nadella took over. Larry Page and Sergey Brin created a new competitive field. So did Mark Zuckerberg. These are reminders of what should be obvious: that leadership matters to the success of a business. We are now in a period when leaders are tested continuously against changing conditions and against one another. Digital leaders so far have an edge, not because they are younger and tech savvy but because they lead in ways that are inherently better suited to a digital company in the digital age. Understanding what is different about digital leaders will help everyone who has been successful in a traditional setting and must now change their habits and mental gears. It might sound harsh, but those who find they do not match up against what leadership demands in the digital age should consider taking a different role and clearing the path for someone else. Rupert Murdoch of 21st Century Fox and Frank Lowy of Westfield conceded all or part of their businesses to others who were presumably better suited to run them. More of these leadership changes will come. But no one is predestined for success or failure. It is an open game, and we are seeing the challenge to current leaders playing out in real time.

PHOTO: MATTHEW GILSON

Excerpted from Rethinking Competitive Advantage: New Rules for the Digital Age (Random House, April 2021) by Ram Charan and Geri Willigan. Excerpted by permission of Currency, an imprint of Random House, a division of Penguin Random House LLC, New York. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.

CHIEFEXECUTIVE.NET / SPRING 2021 / 31

By the end of 2019, Bob Iger had placed his bets and committed tens of billions of dollars to connect directly with consumers and ensure an ample supply of quality content.

MAKING DISNEY DIGITAL

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and Lucasfilm in 2012, with its Star Wars franchise. The acquisitions lit Disney’s box-office success on fire. In 2016 (also the year Shanghai Disneyland opened), four new releases generated more than $1 billion each in worldwide box office receipts. Still, while digital technology had been on Iger’s watch list for many years, there was no indication that the media giant was taking video streaming seriously. Until 2017. Suddenly, Iger’s references to disruption and digital technology led to action. Disney jumped into video streaming in a big way. BAMTech, a Manhattan-based startup created to stream live baseball games, would be key. It had built Hulu’s streaming service, as well as HBO Now’s and others. Disney had earlier made a small investment in the company; then, in 2017, it negotiated to expand its stake to 75 percent. BAMTech built a streaming service for Disney-owned ESPN that launched in 2018, and another, which we now know as Disney+, that launched in late 2019. Having BAMTech build the digital platform was faster than building it in-house but required a commitment of $1.5 billion. That dollar amount was small in comparison to what became another piece in the Disney digital puzzle. In mid-2017,

REUTERS / MIKE BLAKE - STOCK.ADOBE.COM

Take The Walt Disney Company, an American icon. Bob Iger became its CEO in 2005 following a decades-long career in broadcast television. The company pumped out a more-than-respectable EPS and dividend for many years under his leadership (and Iger was named Chief Executive’s CEO of the Year in 2014). But as media watchers saw Netflix taking off, they saw no discernible match from Disney. Some began to question how and when Disney would respond to the steepening decline of broadcast and rise of video streaming. For much of Iger’s tenure, he had sought to reinvigorate the company’s content production, especially animation, which had lost its mojo. The most direct path to refreshing Disney’s creativity, he believed, was to acquire Pixar, which had been wielding its creative and technology skill to produce everyone’s new animation favorites, including Toy Story and Finding Nemo. Iger made the persuasive case to Steve Jobs that a deal would be good for Pixar and Disney, Jobs agreed, and the deal was finalized in 2006. The pursuit of quality content led to two other major acquisitions that soon followed: Marvel Entertainment in 2009, with its library of comic book characters,

shortly after Disney expanded its BAMTech investment, Rupert Murdoch opened a conversation with Iger about 21st Century Fox assets. That got Iger and his strategy chief, Kevin Mayer, thinking about which parts of Fox could enhance Disney’s offerings and increase its scale. Fox’s movie studios and presence in India’s growing market would be major boosts to Disney’s global expansion. Fox also had a sizeable stake in Hulu, which would add to its own and give Disney majority control of a third streaming service that it could use as the conduit for content that did not match the Disney+ family-friendly brand. Negotiations followed, and the Fox deal closed in 2019, with Disney taking on yet another big acquisition and financial commitment—to the tune of $71 billion—in the midst of the transition to streaming that was already under way. By the end of 2019, Bob Iger had placed his bets and committed tens of billions of dollars to connect directly with consumers and ensure an ample supply of quality content. Disney had begun to reclaim the content it had licensed to other companies, eliminating a reliable source of revenues. And it established a price of $6.99 a month for Disney+, low enough to appeal to average families. All of those decisions meant that earnings and cash would take a hit in the short term and the moneymaking model would change. Instead of earnings per share, Iger focused on the number of subscribers as the more important measure of performance. Iger made his case convincingly to investors and had to do the same for those inside the company. The old moneymaking model was being disrupted and so was the organization. A new group was formed to create content specifically for the direct-to-consumer market. New business segments, with labels such as “Direct-to-consumer and international” and “Parks, experiences and consumer products” reflected the new orientation and separated the creators from the data crunchers. To bring Disney employees, investors and consumers along, Iger traveled the globe to explain Disney’s plans and to listen. And he got the board to

support a new incentive structure. So, is Iger a digital leader? It was not a given that Iger would adapt to the tenets of competitive advantage in the digital age, given his experience and background. Any leader coming of age in a stable business environment and especially those in a company that has been dominant, if not monopolistic, can struggle to adjust to the dynamics that exist today. But he seems to have followed the new rules: • Seeing what consumers value most: great content, lovable characters and wanting to consume entertainment in new ways • Using a digital platform to connect with and learn about individual consumers with the potential to personalize their connection with Disney characters and stories • Creating a moneymaking model that focuses on building scale • Engaging eco-partners—such as Verizon, offering Disney+ to its customers—to scale up the number of subscribers • Changing the social engine to support the company’s new positioning and moneymaking model As CEO, Iger seemed to think and act like many of the digital leaders I have observed. He had an open mind; kept learning and discerning new patterns; and was imagining something new, thinking big and steering the organization to boldly pursue it despite the risks. In short, he had the mindset, skills and courage to lead in the digital era. Any company that is or wants to be digital must have leaders who match up against the criteria a digital company requires. Iger was not expected to be a digital leader when Disney’s board of directors gave him the CEO job in 2005, but by the time he announced his retirement on February 25, 2020, he had become one. The same can be said of B2W’s CEO Anna Saicali and Fidelity Personal Investing President Kathy Murphy, both of whom developed their careers in traditional companies and became digital leaders.

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WHAT IS A DIGITAL LEADER?

Will CEO Reed Hastings be able to continue to attract funding for Netflix as the competitive landscape shifts?

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talk about how digital companies are disrupting industries, but most of their leaders don’t start with that intention. • They are motivated to create something new. Their fluid, iterative thought process makes the once-a-year strategy review obsolete. Instead, it is ongoing. • They are hungry for what’s next and willing to create and destroy. Their psychology is geared toward high speed, urgency and continuous experimentation. • They constantly search for what can be improved and what can be created that could be important to consumers and provide a new source of revenue. • They are not afraid to cannibalize what they have or abandon what isn’t working. • While legacy company leaders expect a formal presentation with every “i” dotted and every “t” crossed before they approve an initiative, digital leaders make big bets without the formal apparatus. • They focus on the customer benefits and allow for uncertainty. Their psychology, habits and DNA are predisposed to explore, experiment, learn and adjust, and to quickly cut losses when necessary. • They have the observational acumen to absorb hard data and piece together what does not yet exist. AI and algorithms can help digitally-adept companies sort out operational complexity, but the leaders of these companies must be able to juggle many variables as they change the basic components of their business. • They are not overwhelmed by the speed of change and are comfortable with the concept of creating MVPs, or minimally viable products—a good-enough version of an offering that can be tested and iterated quickly based on customer feedback. • Their ability to handle the constant flood of new information allows them to react quickly to the speed of social media and word-of-mouth and to continually look to shift resources and rebalance short-term and long-term goals. • This kind of fluid thinking and ease in taking in new and complex information goes hand-in-hand with continuous learning. Such leaders stay abreast of what is new and challenge themselves to learn

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The most significant differences I see in the leaders of digital companies versus the leaders of traditional or legacy companies have to do with their cognition, skills and psychological orientation. What is particularly relevant is how these things blend together to link big-picture thinking with pragmatic matters of moneymaking, execution and speed. Each of the descriptions below captures an aspect of how digital leaders succeed. • They have the mental capacity to think in terms of 10x or 100x, to imagine a future space that doesn’t exist, and the confidence that they will overcome whatever obstacles they might encounter. They are knowledgeable about and supremely focused on the customer and have the imagination and vision to conceive of an end-to-end customer experience and a large-scale future space. • They can see how the moneymaking and the company’s ecosystem will work together in new and sustainable ways. • They are willing to make big bets and to withstand initial losses of profits and cash amid doubts and skepticism because they have a clear picture in their minds of how things will work. • They are able to build ecosystems on an enormous scale and believe every market they enter is expandable. • They have a facility for and are comfortable with data-based analysis. Facts and knowledge—not predictable outcomes— give them the courage to act. • They blend data with intuition, examine future trends and adjust their actions and offerings as new data and facts emerge. • There is a fluidity to their thinking. They welcome change and even seek it. They are, in fact, the source of what others perceive as relentless change. People

about things they know nothing about. • They are literate in the application of algorithmic science and value fact-based reasoning. But they know that data is not always sufficient. • They rely on metrics and transparent data to drive execution. • They are highly disciplined in ensuring that their people deliver results on time. • They are skilled in selecting the right people for the right jobs and are quick to move people to other positions who are not suited to the job as it changes. • Digital leaders are willing to reconceptualize the organizational structure so that decision-making takes place closer to the customer to improve the speed and quality of decisions. • They are comfortable giving those under them the freedom to act, while using data and incentives to increase accountability and execution. • The word courage has been associated with strong leadership throughout history in every walk of life, from war to sports to politics. For digital leaders or traditional leaders becoming digital, courage has a specific granularity. They have the courage to act decisively, often making bold moves despite the fact that the emerging landscape is often based on incomplete information and unknowns. Their courage and boldness come from their ability to take in and sort through a flood of new data and information, combined with the raw nerve to take risks. This final bullet is certainly true of Bob Iger, who entered the streaming race later than many expected. He took on a lot of debt to buy Fox and Hulu, knowing full well that pricing could be a race to the bottom, while incurring heavy cash expenditures that will reduce earnings and could invite attacks from the media, investors and activists. If the repositioning of Disney proves to be untenable, it could damage the Disney brand as well as Iger’s reputation. But Iger had the cognitive ability to figure out a path for Disney and the sheer nerve to place a big bet on it.

TESTS OF LEADERSHIP

Today’s fast-paced digital economy is not an era for the timid. But leaders who take bold action without having the requisite skills are merely reckless. When leaders fail, it is usually because their business skills do not fit the challenges of the job. Poor judgment in allocating cash and the failure to hire and train the necessary talent are common shortcomings. For example, we know that autonomous (or self-driving) vehicles (AVs) are coming in the near future, but no one knows when, where, how quickly they will be adopted and who will dominate. Companies in that space will rise or fall based on how well their leaders can navigate the fog of uncertainty in that emerging market space. AVs depend on huge amounts of data, and their development entails a great deal of risk. As we’ve already seen, accidents in the testing and development phase can have an outsize impact on consumer acceptance. Some leaders are pursuing AVs aggressively despite the risk, while others are moving more cautiously. Ecosystems will inevitably compete against each other, and mistakes here, including moving too slowly, may be an existential threat. Leaders have to imagine how the moving parts will fit together, build the relationships and be comfortable sharing information with eco-partners, versus going it alone, as they are accustomed. The total revenue of the global mobility market is unknown, but total car ownership is in decline worldwide. Leaders vying to compete in that space will have to find a moneymaking model that works. That is an especially big challenge for leaders of traditional automakers. Ford, for one, has a cash problem. Ford got a new CEO in October 2020 who is hastening development of electric and autonomous vehicles. Ford spent $1 billion to convert its German manufacturing plant to EVs only. Can Ford outcompete Tesla and newly minted EV makers? Is its partnership with Argo on AVs a winning combination? Will it have sufficient cash to fund its investments in those areas?

CHIEFEXECUTIVE.NET / SPRING 2021 / 35

Ford is testing AVs in three cities, while most other automakers are testing in just one. Ford stands to benefit by getting data from varied settings, but can it afford to do so for an extended period of time? The CEO has to be willing to shift resources as necessary, withstand a barrage of criticism over suppressed earnings and have the skills to deftly explain the narrative to investors and employees. These are business issues leaders in the auto industry have to reckon with, and their decisions have serious consequences. Note the turnover in the CEO positions at BMW, Ford and Daimler. Bob Chapek, who succeeded Iger as Disney CEO in February 2020, had to weather whatever impact the new moneymaking model would have on the cost of capital. Disney’s stock price held up well at the end of 2019 in light of high initial subscription numbers for Disney+, but it was unclear if those numbers were sustainable and if investors would accept lower earnings per share. In 2018, Disney earnings estimates for 2020 were $8.20. By late 2019, estimates for 2020 had fallen below $6. Covid-19 wreaked havoc on earnings, but Disney+ was a bright spot: By early 2021 subscriptions had jumped to more than 94 million. Will CEO Reed Hastings be able to continue to attract funding for Netflix as the competitive landscape shifts? Netflix’s continued success depends on Hastings’s ability to keep the moneymaking model working, even as other companies attempt to lure consumers away with new entertainment options. Netflix has been able to raise prices in recent years without significant blowback. Would the company become unattractive to funders if Hastings lowered prices at some point to attract new subscribers? In April 2020, on the heels of adding 15.8 million new subscriptions in the first quarter and having positive cash

Today’s fast-paced digital economy is not an era for the timid, but leaders who take bold action without having the requisite skills are merely reckless.

36 / CHIEFEXECUTIVE.NET / SPRING 2021

flow for the first time in six years largely because of a slowdown in production, Netflix announced that it was raising $1 billion in low-cost debt split between euros and dollars. In January 2021, it had 200 million subscribers and announced it would not need to assume any more debt to fund dayto-day operations. CULTIVATING DIGITAL LEADERS

Leadership obsolescence is a reality. Many leaders in traditional companies developed their cognitive skills around incrementalism versus rapid and exponential growth. Many used price increases or acquisitions to boost revenues rather than to create new market spaces (note Procter & Gamble’s pattern of premium pricing and Disney’s price increases at its theme parks). Many lack technology skills and knowledge to survive in today’s landscape or may have a weaker appetite for risk. Understandably, it is hard for them to imagine what technology makes possible and to enthusiastically drive exponential growth. They may have no experience in building relationships with eco-partners and no exposure to the power of a digital platform. Most leaders in positions of power in legacy companies have come up through functional or vertical silos—from marketing, finance or operations. If they started at the bottom, they had to rise up six layers or more. That kind of career progression gives them little if any consumer experience or few opportunities to build their business savvy. Even leaders who have run a profit and loss unit probably did so without balance sheet responsibility and may be handicapped in trying to conceive moneymaking models that are suited to the digital age. Up-and-coming leaders had to fight for resources, play politics and be evaluated based on how well they met the numbers. Reviews in legacy companies are largely focused on the rearview mirror. Some had performance metrics around customer satisfaction or a Net Promoter Score index, which are not forward-looking metrics and do not reflect imagination or vision. Leaders who came up through consulting

DIGITAL REINVENTION DIAGNOSTIC  Looking at your enterprise as a whole—beyond specific

Measure Your Digital Mindset

functions—how do you assess the impact of digital technologies on the following areas? Use the following scale: (0) No impact; (3) Some Impact; (5) Significant impact. • Products • Process design • Automation • Service delivery • Ecosystems • Work and workforce • Business model

 Now, assess your transformation efforts using the following scale: (0) Not started; (3) Limited efforts including pilots and experiments; (5) Transformation plans in motion. • Products • Process design • Automation • Service delivery • Ecosystems • Work and workforce • Business model

 Transformation efforts are fundamentally guided by the collective

executive mindset. Assess your organization’s executive mindset along the five areas using the scale: (-3) Minimize risk; (0) Balanced risk-return approach; and (+3) Maximize opportunity.

THE BIGGEST CHALLENGES IN THE DIGITIZATION OF your business aren’t technical—they’re cultural, they’re mental. Is your team really ready for reinvention? Are you? Despite the obvious power of digital technologies, far too many companies continue to rely on the ideas, processes and business models that helped them succeed in the past. Yet, most of those winning strategies do not take into account the speed, scope and scale of business change of our time. To win in this new world, you need to cultivate a new mindset—one that works back from the future, looking closely at products and processes from a customer rather than an organizational perspective, while always questioning established thinking. Most of all, you need to develop a senior management team that can do all of this. Easier said, of course, than done. That’s why Amazon Web Services and Chief Executive Group partnered to present a special report, “Making the Digital Mindset.” Developed in coordination with Venkat Venkatraman, a professor at Boston University’s Questrom School of Business, it offers a series of practical, action-oriented steps that can help you with the process of digitization. You can find it online at ChiefExecutive.net/ DigitalMindset. A candid self-assessment of your organization is a good place to start: So, how do you feel about your organization’s ability to win in the digital future? Clearly, much could be accomplished if you could coordinate with your colleagues. Invite them to use this tool and share their own reflections to sharpen your thinking as you embark on digital business reinvention.

• Financial resources for digital initiatives • Human resources for digital initiatives • Digital business experimentation • Joint digital initiatives with external partners • Challenges to current business model

 It’s becoming clear that digital is enterprisewide. Assess how it’s perceived in your organization along the six dimensions outlined above using the following scale: (1) Limited understanding; (3) Adequate understanding; and (5) Strong understanding. • Scale of digitalization as end-to-end • Scope as business + digital architecture • Speed of adoption • Structure of organization • Skills and talent • Security as technical + cultural

 Reinvention is handicapped by a range of management traps. To

what extent do the following traps inhibit your transformation efforts? Use the following scale: (0) Not a major trap; (-3) Somewhat limiting our efforts; (-5) Major inhibitor. • Leadership Trap (“This is how we’ve always done it.”) • Metrics Trap (“All is well. We’re hitting all our traditional KPIs.”) • Competency Trap (“We need to focus and stick to our knitting.”) • Talent Trap (“We can train our existing people to learn all this new stuff.”) • Ecosystem Trap (“We can’t partner with them—they’re the competition.”)

 Finally, reflect on your digital transformation as a C-Suite

coordinated approach. Assess the extent to which the following are already in place to serve as catalysts using this scale: (0) Not at all; (3) To a limited extent; (5) To a full extent. • A coordinated approach within the C-Suite • Working back from customer problems to deliver solutions • True digital business experimentation culture • Transformation scorecard with relevant metrics • Feedback loops for rapid adaptation

To learn more, explore the “Making the Digital Mindset” special report at ChiefExecutive.net/DigitalMindset CHIEFEXECUTIVE.NET / MAY/JUNE 2019 / 37

firms had their DNA shaped by analyzing multiple industries and massaging facts to get meaningful insights. They tend to be very good in cutting through internal and external data and can often see the big picture. But a large percentage ultimately fails because they lack experience managing a large organization or building top teams, or because of their personality. Their expertise and intelligence allow them to think they are the smartest person in the room. But as a result, they stop listening and are unable to develop and steer the company’s social engine. Turnover among CEO leaders at traditional companies will likely increase. A good percentage will find it near impossible to convert their mindset and skills or will be unable to do so fast enough. Traditional companies intent on transforming into a digital one should consider whether their leaders can make the shift. If not, they may need leaders from the outside. Amazon has become a talent factory and a popular source for recruiting. At the same time, companies that do a deeper search might unearth potential digital leaders in their midst. I have observed a number of situations, beyond those at Fidelity, B2W and Disney, where a leader from a traditional company put the organization on a digital trajectory. Leadership “potential” should be based on the qualities that digital leaders share: a basic knowledge of algorithms, a customer orientation and business savvy, as well as personal leadership traits such as imagination and a drive to execute. In particular, the blend of skills and personal traits must result in good judgment. People can learn and change. I have seen experienced executives at the highest levels of traditional organizations eagerly learning what platforms, algorithms and data can do for their company, and the scope of their thinking and imagination has been enlarged. Some of these leaders now believe that achieving 10x growth is possible, whereas they did not before. They are able to imagine satisfying a customer need that stretches out further in time, seven years or more, and have begun to experiment and

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test what that market space could be. They know that competition is inevitable and are learning to experiment faster and accept some failures. Millennials represent a richer vein of leadership hope for the future, but they may need to develop their social skills. Those with a background in computer science can nail coding and platform and app development, but their thinking has a downside. It is binary. Such experience can condition people to see things in black and white. They may lack empathy or nuanced social skills, which are critical in a digital company’s team-based organization. Coaching can help. And on the whole, taking a risk on a younger person with expertise in the digital world but who lacks experience running an organization may be a better bet than turning to traditional leaders who lack the relevant cognition, skills and psychology. The digital giants are few in number. There are only about 20 worldwide. But their leaders, too, face competition. Many succeeded as a first mover in their space, with little to no competition. They now have to think about whether they can continue to grow on the path they’ve chosen or whether to succumb to pressure to boost earnings per share at the risk of slower growth. Even with well-developed moneymaking models, platforms, brands and consumer connections, new challenges are emerging, such as dealing with regulators or taming culture. I feel confident that a new generation of leaders will arise to meet the challenges of today’s digital world, probably from many different sources. Clarity about the criteria these leaders must meet will help identify them. Clearing a path for their growth will allow them to develop, probably much faster than we think. It may mean overlooking others to favor the necessary skills over extensive experience. Organizations that understand how digital leaders are different, and search them out and nurture them, will have an edge over companies that do not. That’s competitive advantage in the digital age. CE

Ram Charan, a worldrenowned business advisor and bestselling author, has spent the past 35 years working with CEOs and boards of many top companies. He has served on a dozen boards.

A FT ER-ACTI ON R E PORT

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‘IT’S COMPLICATED’ Roundly blamed for leveling the house that Jack built, former GE CEO Jeff Immelt offers an after-action report of lessons learned during his tenure. INTERVIEW BY C.J. PRINCE

If it’s true, as James Joyce wrote, that mistakes are the “portals of discovery,” then Jeff Immelt’s new memoir may serve as a detailed map for CEOs in every industry on what not to do. In Hot Seat: Hard-won Lessons in Challenging Times, Immelt offers an excruciatingly detailed look into the pivotal decisions he made at GE—many of which he was later crucified for in the press and on the Street. Immelt isn’t shirking the blame. He wants to own his mistakes—but he also wants those who laid the blame for GE’s decline squarely at his feet to fully understand the perfect storm of headwinds and crises (e.g., his second day on the job was 9/11) that served as the backdrop for his tenure. “I wrote the book the way I did because I wanted to put the reader in the cockpit of the decisions as they happened so they could draw their own conclusions as to why they worked or didn’t,” says Immelt. As every CEO knows, mistakes—sometimes big ones—are inevitable over the course of a career, and hindsight is always 20/20. Immelt has regrets, certainly, not least for what became of the company whose logo he had tattooed on his hip, but he isn’t looking for absolution. What he wants most now is to constructively share wisdom gained from those failures in the hopes that today’s sitting CEOs—who face, as he did, a rapidly changing world—may glean lessons to ease their paths.

Looking at all that went wrong at GE during your tenure, what are the top five lessons that have crystallized since then?

The first would be, right after 9/11, thinking about a different way to construct the company and dramatically slow down the growth of GE capital and pour money into industrial. We did part of that, but not all of it. [What we had been doing] worked up until the financial crisis and then it didn’t look very smart. You have certain windows of time when you’re a CEO, when you have a chance to do something profoundly different and sometimes crisis gives you that opportunity. Even though it was early in my tenure, crisis did give me that opportunity, and I just didn’t take it. Number two, I would have run the company differently. I kind of ran the company at scale. I had big P&Ls of functional organizations. If I had it to do over again, I would have deconstructed the company into hundreds of P&Ls and that would’ve made our leaders more nimble. Number three, GE Capital was so complicated, I should have had more outside help. I should have brought in one of the big private equity firms to help us think through how to get more value out of it. Four, particularly when we were in transition, I gave the board too much to work on. I had the role of both CEO and chairman, and it

CHIEFEXECUTIVE.NET / SPRING 2021 / 41

was my responsibility to simplify their lives. I gave them too much complication. Lastly, in certain moments, the right answer would have been for me to say, “I don’t know.” Because of the size of the company, sometimes I tried to give certainty where none was available. So, a few times, I wish I had said, “I don’t know.” There are a thousand more [lessons], but I’ll stick with those five. You wrote in the book that sharing problems when you don’t have the solution can be torture for the company, employees,

board meeting where a lot of people wanted me to cut the dividend. I didn’t want to cut the dividend because I knew it would be devastating to me personally. And that’s where Ralph Larsen, who was my presiding director, just turned to me and said, “We’re going to cut the dividend. You need to shut up now.” And I always listened to whatever Ralph said. He was so wise; his intentions always so pure. Those directors that have both wisdom and are in it for the company all the time, those are rare. You have to have as many of those as you can.

stakeholders—but that sometimes you don’t have the answers. If you could do it

In telling the story of your disagree-

over, how would you handle that?

ment with the board about replacing

There are a number of different nuances in that question, but how can you be decisive and listen at the same time? Particularly with big organizations, you need to demonstrate decisiveness because sometimes you have to act. Sometimes, you’ve listened to a bunch of people, but you can’t listen anymore. So, this ability to kind of act and listen at the same time is incredibly important. I’m not a person who uses a big vocabulary, but I’ve learned the word “cacophony” because that’s exactly what running a big company is like. You have disparate voices that are always ringing at any given time, and you have to know which ones to listen to. You also need a couple of people you trust close to you, so that when things really are confusing, you can lean on them.

Steve Bolze, you wrote that you wished

In certain moments, the right answer would have been for me to say, ‘I don’t know.’”

you had done that differently. With the board dead set against the idea, how could you have done that another way?

Yeah, that was a tough time for all of us. It was during my succession, and I was walking a bit on eggshells. In retrospect, Steve wasn’t really a bad guy, and he had done a lot of good things for the company—but to have a leader who had resigned three times leading a big transaction like [Alstom], we should have had our heads examined. As CEO, you don’t want people to be loyal to you personally, but you want them to be loyal to the cause. When they’re thinking more about themselves than the cause, they have to leave, right? That’s the mistake we made. And look, I could have rolled over everybody—I was chairman—but I had done that a couple of times and I just felt like I didn’t want to do it again. You were accused of having created a culture of “success theater.” Looking back, were people telling you what you wanted to hear or were you really get-

Should one of those confidantes be a

ting the unvarnished truth?

board member?

The thing, though, was that I made decisions in a crowded room. If you make decisions with four or five people, you never get accused of not listening because they’re all in the room. But when you make decisions in a room of 50 people, which I frequently did, there will be people who say, “He didn’t listen to me. He should’ve known better.” People confuse being bullheaded with the fact that you can’t get

Yes, a lot of them should be on the board. The board is critical. I always had good people like that on the board, but the board has its own complications. Typically, they should be the adult in the room, but they’re not always, so there’s a whole other dynamic. In the book, when I write about the global financial crisis, I talk about the

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consensus on everything. There were times people were telling me not to do something but I didn’t listen, and it didn’t work. But there are a lot of things that worked that people told me not to do, so in the end, it gets back to people and your own process. Particularly in a crisis, CEOs need to make decisions in a crowded room, but it makes you vulnerable for second-guessing, and you just need to accept that. Even with all the second guessing that I’ve received, I wouldn’t change the transparency I had with my board and my team. Also, a lot of founders like the alchemy of making decisions and they like to do it on their own. I tell the founders I coach, “OK, go ahead and make that decision, but let your whole staff engage you in that decision.” It shouldn’t be a mystery. If you have 100 people, 99 shouldn’t be wondering why you’re doing what you’re doing. One of the things I would recommend is, we did these weekends for eight years where I would bring up a senior leader in the company and we would have dinner on Friday night with our spouses. Then we would meet in the office Saturday morning for five or six hours, and I would say, “Tell me something I don’t know about the company. What do you think about your business? What’s missing?” I got a tremendous amount of insight into them as leaders, but also into the company. We took real actions based on that. I did that to break through the systems and try to figure out what was going on and how I could listen better to the team. I tried to break down as many barriers as I could to get to the truth.

weren’t necessarily as prepared as I needed them to be for what was next. Was there any way for a company as big and complex as GE to have been nimble and successful?

It’s a good question. Clearly, we were too complicated over time. We tried to be simpler as time went on, and I’m not sure we ever got simple enough. You can be big and fast as long as you’re really focused and deep. That’s what’s hard to replicate when you’re broad and big, being focused and deep enough to really make fast decisions. The qualifier to that is Amazon, which was built to be fast, and they do things at scale and speed. But we were just too broad, I’d say. To be fair, Amazon is a digital native.

Yes, exactly. Jack Welch was a fantastic CEO, but the time was so different in terms of where we live, the globalization, the technology, the scrutiny, what investors expected. So, we were trying to make the company more contemporary for the era we lived in.

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GE was known for being a place where great leaders grew up—which would indi-

Given the pace of change today and the

cate a solid, deep bench. Yet, you wrote

complexity of the world we’re living in,

that you wished you had a deeper one.

how can leaders of a diversified busi-

Yeah. It’s funny—we’ve placed lots of leaders throughout corporate America and the world who are good CEOs, who worked at GE and who valued their experience at GE. But what happens to companies is the world changes, right? From 2000 to 2020, just the amount of volatility, the amount of globalization, technology—you can go down the list—and all of us needed to be more nimble by 2017 than we needed to be in 2000. So, we still had really good people doing good work, but they

ness like GE keep up?

Look, some of it’s construction, right? Some of it is how you keep your company focused, how you simplify the work in the field you’re in. And some of it is the ability to recruit new talent, to help compensate for what you might be missing or where you need to go. Brian Cornell [CEO of Target] is a friend of mine, and Target is a great case of an old-line retailer who’s been able to change dramatically to be more digitally competent. Now Brian’s a great

CHIEFEXECUTIVE.NET / SPRING 2021 / 43

learner, and he’s brought in talent from the outside, but he’s also swimming in one lane. It’s harder to do that when you’re swimming in eight lanes simultaneously, right? So again, it’s a function of simplifying your foundation, but then also recruiting from the outside to help you transition. When you do those things, scale can be a really good thing. What advice would you give CEOs about

better, you have to kind of open the door. If you’re in volatility and a simple answer isn’t what’s needed, you need to fight it. Trian [Partners] didn’t create any of GE’s issues— we would have had them with or without Trian, but to a certain extent, they made it harder to solve the company’s challenges. They definitely pulled the company internally and didn’t help create a constructive message for a period of time.

scaling through M&A?

There are three things that are part of every deal. It’s timing, it’s what’s your market thesis, and it’s execution. When you get those three, M&A works. With Amersham, we were early, we had a huge market tailwind, and we had good execution. With Enron Wind, we were early, we had huge market tailwind, we had good execution. With Baker Hughes, we were probably well timed, but terrible market dynamics and good execution. And with Alstom, it was bad execution and bad timing. The reason why very few deals work is that it’s hard to get all three of those right.

Diversity is one of those initiatives where everybody’s always shied away from metrics.”

You wrote that shareholder activism was the wrong answer for GE. What’s your takeaway for CEOs tussling with activist investors?

I’m an imperfect messenger on some of this, but I’ll give you a few observations. One is, there’s a different dynamic when they’re on the board than when they’re not on the board. I personally think that in a crisis, they make life worse. So, to a certain extent, if you’re on a board and you think the company is really heading toward volatility, you should stand up and fight having them join the board because they just suck you internally all the time. Then, just understand that there are three levers they pull: Fire the CEO, break up the company or cut costs. It’s not like there’s a fourth or fifth—there’s just three. So if one of those fits, you’re in relatively smooth sailing and you think you can get the stock to perform

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You were ahead of the curve on diversity, particularly in creating an inclusive culture. What did you learn that might benefit other CEOs?

We had a good diversity leader, and we had a good process and a strategy. So, we recruited diversity and we had huge affinity groups. But we had an operating mechanism around outcomes. We would get together once a quarter as a leadership team and go through metrics around how many women or African Americans were at each level of the company. If the business was falling down, they got in trouble and they had to focus on getting their metrics going in the right direction. What’s been missing in corporate America is outcomes. People want to have this debate around, “We hire nothing but the best and we’re not gonna lower the standards, therefore we don’t have quotas, blah, blah, blah.” I think you have to hold two truths at the same time. One is “we hire nothing but the best,” and the other is “diversity needs to improve.” If you can’t wrap your head around that, you can’t lead in this era, in any company, in any industry. So, diversity is one of those initiatives where everybody’s always shied away from metrics, and metrics really do matter. Do you feel like you’ve made your peace with your time at GE?

Yes, I really have. It’s complicated and there’s not a day that goes by that I don’t think about it. I know I’ve let some people down and I’ll carry that forever, but I also know that I did my best. I really did love the people I worked with, I really did love the company. So, I just have to deal with that mixture of self-doubt and the tremendous reward I had of leading such a great group of people. CE

HOW DO YOU GAIN AN EDGE IN THE DIGITAL WORLD ORDER? RAM CHARAN, bestselling author and adviser to some of the world’s top CEOs and boards, redefines competitive advantage for the digital-first era

NEW RULES TO GET AHEAD

Revolutionize and personalize the customer experience Build a “social engine” that drives constant innovation Attract funders who understand the big picture

Filled with stories that peek behind the curtain of digital behemoths, as well as of traditional companies that have transformed their organizations, RETHINKING COMPETITIVE ADVANTAGE is the ultimate guide to creating competitive advantage today. OUT NOW I LEARN MORE AT RAM-CHARAN.COM / BOOKS /

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T HE BE ST AND WOR ST STATE S FOR BUSINE S S 2021

UP FOR

GRABS While the top (Texas, Florida) and the bottom (just guess) of our annual rankings remain unchanged, what has changed are the stakes, with a growing number of CEOs we polled open to a post-Covid change of locale. Governors, take note. BY CHIEF EXECUTIVE STAFF DESPITE A GLOBAL PANDEMIC, near-economic collapse, civic unrest, just-plain-insane election cycle and everything in between during this crazy Covid year, when it comes to the places CEOs like to do business, the old saw is true: The more things change, the more they stay the same. For the 17th year in a row, Texas tops Chief Executive’s Best and Worst States for Business list. Number two? Florida, once again. When it comes to the three criteria CEOs tell us they value most in site selection—tax policy (37 percent rank it first), regulatory climate (35 percent) and talent availability (25 percent)—Texas and Florida outclass all comers. And once again—yawn—California, New York, Illinois and Massachusetts pile up at the bottom of our rankings (based entirely on polling of the nation’s CEOs) where they have dwelt for most of the list’s existence. But while the names at the top and the bottom remain unchanged, what has changed— dramatically—are the stakes. Governors take note: Our survey—of 383 CEOs in March 2021— finds the nation’s business leaders an increasingly restless bunch thanks to Covid. They’re open to all kinds of new ideas about how—and, more to the point—where to do business. Forty-four percent of those we surveyed report that they’re “more open than before to examining new locations” for their business, while 34 percent said they’re “considering shifting [or] opening significant operations [or] facilities in a new state.” In a world of remote work, reshuffled markets and flat-out rethinking of nearly every aspect of business, the hearts and minds of CEOs are very much up for grabs.

48 / CHIEFEXECUTIVE.NET / SPRING 2021

RANKING 2021 BEST & WORST STATES FOR BUSINESS <<LOSS FROM 2020

RANK

GAIN FROM 2020>>

1 Texas

Sun, fun—and open. Florida had winning optics in a dismal year.

2 Florida

Tennessee North Carolina 5 Indiana South Carolina 6 Ohio 7 3

Nevada

While Texas suffered a serious setback when its electricity grid failed during a freakishly bitter winter storm in February, the state managed to hang onto its top spot again (see story, p. 51).

Georgia

Arizona

Utah

South Dakota

Virginia Delaware

13 14

Michigan Wyoming

15 16

Iowa Missouri Louisiana

17 18 19

Colorado

Idaho Wisconsin

21 22

Kentucky New Hampshire

23 24

ABBOTT: REUTERS / LUCAS JACKSON; NOEM: REUTERS / LARRY DOWNING - STOCK.ADOBE.COM

Oklahoma was absolutely not okay in 2021, as plunging global oil prices devoured the state’s economy, a boom-bust cycle other energy states have learned to hedge over the past 20 years.

25 26 27

Oklahoma

Governor Kristi Noem’s defiant stance on allowing businesses to carry on during Covid propelled national headlines— and a big jump in CEOs’ rankings.

Montana Nebraska Kansas

28 29 North Dakota

Alabama

Arkansas

Mississippi

Alaska

West Virginia New Mexico

34 35

Maine

Rhode Island

Maryland Vermont Minnesota Pennsylvania

38 39 40 41 42 Hawaii

Connecticut

Oregon

A strong, pragmatic Covid showing by rookie Gov. Ned Lamont impressed CEOs—and pulled tiny Connecticut out of the basement this year.

45 Massachusetts

Washington

46 47 New Jersey 48 Illinois 49 New York

At the bottom? The usual bunch. Despite powerful human capital, high costs remain a turnoff.

-10

-8

-6

50 California

-4

-2

NEW DIGITAL FACTORY TOWNS CODERS AND SOCIAL-MEDIA MAVENS are a dime a dozen in long-established high-tech outposts like Silicon Valley. But to leverage AI in manufacturing, tap into “design thinking” in product digitization and harness big data in actuarial software, companies are looking to places like Chicago, Grand Rapids and Columbus. The capital of Ohio is employing a “legacy digitization strategy” built around the critical mass of insurance companies headquartered in Columbus, Cleveland and other Ohio cities. The long-time presence of marquee insurers like Nationwide, SafeAuto and Progressive has built a huge stockpile of industry expertise. “You can find actuaries and people who understand the category here, and it’s a favorable state regulatory environment,” says Mark Kvamme, co-founder of Drive Capital, a Columbus-based VC firm that funded local startups like car insurer Root; moved a travel-insurance startup called Battleface to Columbus from Washington, D.C.; and launched Medicaid-insurance startup Circulo locally. States and cities making headway with a new strategy: assisting industries and vertical niches where they’ve already dominated—or think they can grab an edge. The playbook is gathering steam thanks to the dispersion of work—and talent—during Covid. Alex Frommeyer, CEO of Beam Dental, calls Columbus “a goldilocks city for our business. It’s got a huge concentration of digital talent across product engineering, data science, marketing and a bunch of other fields, a university concentration in insurance and the business infrastructure. But it’s not such a ‘discovered’ city where we need to compete with Facebook, Google or Tesla for talent.” In Michigan, digitization of legacy industries “plays to our strengths,” says Tom Kelly, CEO of Automation Alley, a public-private partnership north of Detroit. The group recently granted 300 3D printers to small manufacturers in two counties, which will then be connected to form a huge additive-manufacturing network. Based in Grand Rapids, the Seamless Consortium combines about two dozen big local employers that depend heavily on industrial design to finance “proof of concept” engagement with startups around the world related to manufacturing technologies. “It’s easier for physical companies to integrate this stuff than for digital people to integrate all the capital in the physical world,” says Mike Morin, co-director of the group. “That’s why you’re seeing this happen here.” The city’s history as a “design capital” helps, says Nevan Hanumara, a professor at MIT. “It’s in the DNA and in a network of professionals who hop from company to company there and stay tightly interconnected.”

50 / CHIEFEXECUTIVE.NET / SPRING 2021

A Tale of Two Besties

Florida certainly got the memo. From high-profile headhunting for high-net worth Wall Streeters to Governor Ron DeSantis’s flaunting of open beaches—and open businesses—throughout the pandemic, the Sunshine State is the clear winner in last year’s economic perception derby. Jonathan Chariff, CEO of South Motors Group, says Florida’s response to the pandemic has been “a

34% of CEOs said they’re considering shifting or opening significant operations or facilities in a new state.

tremendous factor,” in his decision to expand there—some $40 million in new BMW and Honda dealerships in Miami. “Florida is blowing up. Except for the extra traffic, it’s great.” And while Orlando’s tourism economy is just starting to rebound, the city that Mickey built is now a true comer against traditional tech outposts. Major homegrown digital companies such as Luminar, maker of lidar for autonomous vehicles, and Fattmerchant, a competitor to Square in digital payments, “have created a lot of new millionaires in Central Florida,” says Tim Giuliani, head of the Orlando Economic Partnership. The area was pursuing as many new-business leads in the first quarter of 2021 as it had in the comparable period of 2019. “Sunshine, low taxes, Covid openness: What talent wouldn’t want to move there?” says Kathy Mussio, partner with Atlas Insight development consultants in Washington, D.C. “You can save enough in taxes compared with the Northeast to make a down payment on a house in Florida.” Brand Texas has had a different kind of year. Despite its No. 1 ranking, the Lone-Star State suffered a serious reputational setback when its electricity grid failed during a February cold snap (see sidebar). While rival Florida broadcast-

WHAT MESS IN TEXAS? TO ALL BUT THE MOST HARDCORE FAN, the scene in Texas isn’t pretty right now. The freak midFebruary winter storm and collapse of its power system delivered a haymaker and wobbled the Lone Star State in the opinion of CEOs across the country for the first time since the 1980s. Texas’s dominant oil-and-gas business busted on cue, as Covid stalled the global economy— and kept millions of drivers off the roads for months. America’s growing immigration problem is massing mainly at Mexico’s border with the state. And for the first time, key outposts such as Austin are showing signs of growth fatigue. Things got so bad in February that even Texas superbooster Elon Musk seemed a bit grumpy on Twitter with his new home state. Any other place would be worried about losing its longstanding billing as The Best State for Business. But Texas? Hell, no. “These things aren’t going to affect our standing at all,” Governor Greg Abbott tells Chief Executive. “People know one-off events occur, and what matters most is what our response is. Texas is responding very aggressively and strongly and will ensure a stable power-grid system that will be the most robust in the United States,” especially after the state legislature finishes grappling with solutions in May. In fact, Abbott says, despite the failure of wind power in Texas’s numbing outage, by next year the state will be No. 1 in generation of solar as well as wind energy. “That will help keep us the top energy state,” he says, “and much of the transformation is being led by some traditional energy companies that are transforming their portfolios, knowing that fossil fuels will be required for years to come—but also alternatives.” As for the problem of illegal immigration, Abbott insists it “ebbs and flows” over the decades and “is something that affects the entire nation. Congress and the administration hopefully will be looking for solutions.” Glenn Hamer, president and CEO of the Texas Association of Business, sums up the everboosterish mood at the top: “Mother Nature can humble any country or state,” he says, “but the fundamentals of the Texas economy are as strong as ever.” So far, so right. Blackout or not, Texas outscored every other locale in the nation again this year in our annual CEO poll. But after the travails of 2020, among many business leaders—both in the state and outside—there is an emerging realism that low taxes and high confidence alone won’t cut it going forward. “There’s going to be a painful adjustment for a number of years because of the pain inflicted on businesses and homeowners” by Texas’s failure during the storm, says Calvin Butler, CEO of Exelon Utilities, a major conventional power generator in Texas that sustained a pretax loss of as much as $700 million amid the chaos. The state’s phenomenal growth is beginning to yield some strains. These are most apparent in Austin, where tech companies are flocking from California and elsewhere in search of capable digital workers in a fertile business climate. Among the effects have been skyrocketing real-estate costs and big new encampments of homeless. “A lot of native Texans have had enough,” says Steve Murphy, CEO of Epicor Software, who relocated to Austin from San Mateo, California, three years ago. “The price of housing in Austin has pretty close to doubled in the last five years. The commutes have gotten bad, and when people go back to the office, they will be worse.” How much worse? Time will tell.

Tech companies are flocking to Austin from California and elsewhere in search of capable digital workers in a fertile business climate.

CHIEFEXECUTIVE.NET / SPRING 2021 / 51

States that had strong and balanced leadership during Covid will probably be the best positioned for short- and longterm economic growth. ed sun, sand and surf, Texas emitted pure misery, images of frozen residents standing in lines for clean water amid one of the largest public infrastructure collapses in the nation’s history—one critics say was largely predictable and preventable. CEOs noticed. Texans “are saying this is a blip they can fix,” says Josh Brumberger, CEO of Utilidata, a utility-software outfit based in Providence, Rhode Island. “But they should be leading with, ‘This was a colossal failure, and we own it, and here are the things we’re doing to fix it.’” The Covid Factor

A few states that prioritized remaining open during the pandemic were able to realize a significant bump in this year’s ranking. South Dakota, where Governor Kristi Noem was defiant about allowing businesses in her state to carry on, jumped 12 spots to No. 12 thanks to national headlines—and praise from business leaders. “We’ve been free to operate as we choose, not just through the pandemic, but long before as well,” says Travas Uthe, CEO of Trav’s Outfitter, a big-box outerwear store in Watertown, South Dakota. Rhode Island, which maintained a more open attitude than its neighbors, climbed

52 / CHIEFEXECUTIVE.NET / SPRING 2021

to No. 37 from No. 40. “We never shut down our manufacturing sector or construction activities, which was rare among the states, because we partnered quickly with industry on safety protocols,” says Stefan Pryor, Rhode Island’s commerce secretary. Some expect the bump from strong pro-business leadership during Covid to last. “We won’t know for a couple of years for sure,” says Larry Gigerich, managing director of the Ginovus economic-development consultancy in Fishers, Indiana. “But states that had strong and balanced leadership during Covid will probably be the best positioned for short- and longterm economic growth.” The virus may finally be easing, but a huge new wildcard in the economic-development game could be how states and cities spend the funds they’ve been promised under the Biden Administration’s $1.9 trillion stimulus package. Port Huron, Michigan, may refund all 2020 property taxes with its $19 million windfall, for instance. Westchester County, New York, plans to use its $187 million to nip and tuck its economic platform via everything from expanding broadband capabilities for remote work to aiding small businesses. “We’re well-positioned to roar back,” says Bridget Gibbons, economic-development head of the suburban New York City region that is already home to many of the nation’s most storied companies. “Companies with large headquarters are studying whether they want 10 floors in midtown Manhattan or a hybrid model so they can downsize their space—and come to us.” If, of course, Florida doesn’t get them first. CE

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CANCEL CULTURE

CONFIDENTIAL

54 / CHIEFEXECUTIVE.NET / SPRING 2021

Yes, operating a company in a politically divided America has risks, but those risks can be managed—and potentially used to your advantage. A guide. BY DALE BUSS

THE SUPER BOWL IS THE BIGGEST CANVAS for how marketers view the state of mind of the American populace, and auto companies typically are the largest cohort of advertisers making multimillion-dollar bets on tapping into the national mood. This year, in the wake of Covid and political unrest, Ford ran a regional advertisement just before kickoff about simply “finishing the job” of getting through the pandemic. Stellantis went to the other extreme and recruited Bruce Springsteen for a Jeep spot in which the rock superstar beckoned Americans to find the political “middle.” Ford’s ad made little impact; the Stellantis commercial got rapped hard from both the right and the left. The real winner of the Big Game auto-advertising sweepstakes? Toyota, which aired a commercial about a U.S. Paralympic athlete who was born with a disability in Russia and adopted by a compassionate American couple. “Our ad was more about people and relating to the values of the company,” says Mark Hogan, a former Toyota board member and former president of Magna. “It was more about human interaction.” Even there, some viewers insisted on seeing the Toyota spot as an anti-abortion, pro-adoption statement, “but it wasn’t that deep,” Hogan insists. Welcome to 2021, where every marketing move seems to be fraught with the “current moment” of political division and societal unease. In a widely cited Edelman poll, nearly 60 percent of Americans said they would choose, switch, avoid or boycott a brand based on its stand on societal issues, up

CHIEFEXECUTIVE.NET / SPRING 2021 / 55

“Make sure you’re aligned with those values, particularly inside the organization.” —David Bentley, CEO, Porter Novelli

How many are still fighting the brand brawls“Nobody asks us any more about the story from 2019.” —Yogesh Gupta, CEO, Progress Software

from 47 percent the year before—and that was in a 2018 survey by Edelman, long before the tumult of 2020 and early 2021. Meanwhile, in a recent poll of public company directors fielded by Diligent Institute and our sister publication, Corporate Board Member, 57 percent of directors surveyed said they are more concerned about reputational risk today than they had been in prior years, even as 54 percent said their CEO had made a public statement to address social or political events occurring in 2020—more than double the rate four years ago. Spend enough time on Twitter and you’ll come to believe so-called “cancel culture” is the biggest bogeyman in business, where running a company is somehow an endless ideological Rorschach test, where every communication or representation may carry—or be perceived to carry—ideological weight or a political purpose. And doom is one slip away at all times. The truth is much more mundane: While operating a company in a politically divided America certainly carries some risks, those risks can be managed—just like the risks in every other area of your business. To help, Chief Executive reached out to a slew of experts for tips, including CEOs who have successfully navigated this tricky world. The good news: Even if your company has a run-in with #cancelculture, it will almost certainly survive. “The easiest form of activism is online,” says Rick Levick, head of Levick, a strategic-communications firm in Washington, D.C. and longtime go-to guy for big brands in crisis. “It’s the easiest place to have courage. Most criticism comes and goes quickly.” #KNOWYOURTRIBE Among the CEOs and experts we talked to, the thing almost all of them agreed on was that at some point, you’re likely to anger someone. You should just accept that. “The idea that you can please everyone–that

56 / CHIEFEXECUTIVE.NET / SPRING 2021

day is probably gone,” says Levick. “But that’s why you need to know who relates to you. Be a brand that approaches some level of religiosity, those that have periodic crises but don’t have to play Whac-a-Mole. They’ve used ‘peacetime’ wisely and built high trust banks.” Apple, Starbucks and Subaru are sterling examples. The car brand, for instance, keeps experiencing climbing sales and market share in the U.S. around its crystal-clear positioning as a brand for progressive consumers, right down to a TV ad a few years ago that depicted a woman taking her granddaughter to the site of the 1969 Woodstock festival in New York where the grandparents had carved their initials into a tree. “We only have [four] percent of the market,” Tom Doll, president and CEO of Subaru of America, said a few years ago. “There are a lot of people who are out in the marketplace that believe what we believe and the purpose we’re trying to pursue. You’re never going to get 100 percent of the population. I just want my piece of it.” Nike famously built a 2019 marketing campaign around Colin Kaepernick, the divisive former quarterback who was first to kneel on an NFL field during the national anthem. “It doesn’t matter how many people hate your brand as long as enough people love it,” Nike Co-Founder Phil Knight told students at the Stanford Graduate School of Business afterward, as sales boomed. Sales reportedly have skyrocketed for My Pillow since Mike Lindell, founder and CEO, widely publicized charges that the 2020 presidential election was sabotaged. Already a darling of rightists and perhaps the biggest advertiser on Fox News, Lindell found sympatico consumers rallying anew to products of the Chaska, Minnesota-based manufacturer. “It’s an important part of being a leader in today’s world: navigating one group over another and choosing what you want to stand for is something that you need to do,” says David Bentley, CEO of New York-based PR giant Porter Novelli. Still, Seth Goldman, director of Beyond

Meat and founder and former CEO of Honest Tea, stresses that “a flashpoint moment isn’t the time to start developing your political beliefs” as a business. “The key is to think about how you behave every day. A crisis is important, but if you’re not laying the groundwork in what you do every day, you won’t be prepared for moments of crisis.” #BEYOURSELF If you do want to speak out, all politically relevant actions must stem from “a set of values that you articulate and you can adhere to,” says Peter van Oppen, a director of RFID manufacturer Impinj and former member of a dozen other corporate boards. “You’re better off with authentic adherence to a view that doesn’t placate everyone than you are with a set of values that shifts in the wind. The stand that you take should be because you believe in it and you believe your team will find it authentic and worth supporting.” For example, says Goldman, Beyond Meat’s lab-born, plant-based burgers are aimed at consumers who want to reduce their meat consumption for dietary or sustainability reasons. “So it’s very real for us to say, first, that climate change is real; it’s not a debate we can afford to be having,” he says. “And that we, as a company and society, should be doing something about it.” Greater employee demands for diversity and inclusion are at the root of much of the internal unrest in the American workplace these days. But it’s not as easy as writing out a check to Black Lives Matter. “Make sure you’re aligned with those values, particularly inside the organization,” says Scott Farrell, president of global corporate communications for the GolinHarris PR firm. For example, “Don’t go out there talking about how important diversity is if your own house isn’t in order.” “We’ve stopped many clients from making grand statements about racial injustice because they didn’t have the authenticity to do that,” Bentley says. Rather, he counseled them to “communicate more reflectively and listen in their own organizations, especially to people to whom the topic made a big difference.

They need to take it step by step.” Manufacturing CEOs have a particular opportunity to progress on the D&I front, says Marc Braun, president of Cambridge Air Solutions, an HVAC equipment maker in Chesterfield, Missouri. “We’re in a unique position typically because of the significant diversity of our employees,” he says. “Financial services firms don’t have as much diversity, for example. The tech industry doesn’t. Also, we’re important because of the size and scope of the economic impact we have.” #ENGAGEYOURPEOPLE If you want to navigate on behalf of the company, it helps to ask employees for their views on issues in the zeitgeist. “Listen and understand that it’s not actually about you the CEO or the organization but about others in the organization and how they’re feeling at the moment on a topic that may be completely away from the business,” Bentley says. Jeff Gorter is vice president of clinical response for R3 Continuum, a Minneapolis-based human resources consultancy that gathers groups of employees of a client for 90 minutes to talk through issues so they feel “heard and understood and given the respect or dignity they feel they should have.” The sessions begin a process that the company then continues. “Until that happens,” Gorter says, “they’re not budging. And they’re already talking about it now but without your direction and without the positive expectation of understanding—they’re just shouting at each other in the break room.” Toyota nurtures more than 100 “employee resource groups” at its North American operations, which allow workers to self-associate around any of 13 identity groups that include everyone from African-Americans to pet owners, from LGBTQ+ identi-

“A flashpoint moment isn’t the time to start developing your political beliefs.” —Seth Goldman, Director, Beyond Meat

CHIEFEXECUTIVE.NET / SPRING 2021 / 57

“We all understand that people are coming from different backgrounds.” —Sean Suggs, Group Vice President of Social Innovation, Toyota North America

fiers to Christians, and veterans to young professionals. The groups’ focus is on workplace concerns, but the automaker also funds community-oriented activities the groups conceive, organize and execute. Their existence also helped sublimate political tensions over the past year. “We all understand that people are coming from different backgrounds, so they avoid a lot of conversations in the workplace,” says Sean Suggs, group vice president of social innovation for Plano, Texas-based Toyota North America. “These groups are grounded in the Toyota Way: in continuous improvement and respect for people.” For years, companies have permitted anonymous questions during all-hands meetings as a way to encourage free-flowing dialogue. “You can also poll your employee base silently on political issues,” says Justin Danhof, general counsel for the National Center for Public Policy research, which lobbies corporations from a conservative viewpoint. “That can give you cover against taking progressive positions you don’t think are right, especially if you’re in flyover country. You have the data to say, ‘This isn’t where our employees are.’” #DON’TOVERTHINKTHIS Another thing to keep in mind: No matter what the polls say, when it comes down to purchasing decisions, many consumers love what they love regardless of what kind of a bumper sticker they’d slap on it. “For 99 percent of consumers, their need isn’t, ‘I want a company that’s going to say something political,’” says Goldman. “It’s, ‘I’m thirsty.’” Chick-fil-A, which is hardly shy about its conservative Christian values, packs restaurants across the country—including plenty of deep-blue costal enclaves like metro Washington, D.C. How? Beyond the delicious chicken, the chain “lives its values of cleanliness,

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politeness and kindness,” Levick says. “So customers are willing to forgive differences of opinion though not arrogance. Chick-fil-A has navigated that masterfully.” Across the aisle, not many conservatives are leaving Prime membership because of Amazon actions to which they object. And Netflix’s rising viewership encompasses millions of Republicans who disagree with many of the company’s programming choices—such as airing a documentary by the Obamas—and the fact that 98 percent of Netflix employees’ political contributions went to Democrats in the last election cycle. “Boycotts aren’t real and they’re never long-lasting,” says Danhof. “Especially from the conservative side.” How many customers are still fighting the brand brawls over immigration in 2017 and #MeToo in 2019? Not many. “Nobody asks us anymore about the story from 2019 about a company we acquired that had taken money from the Immigration and Naturalization Service, which was being criticized for putting [immigrant] children in cages,” says Yogesh Gupta, CEO of Progress Software, based in Bedford, Massachusetts. “After two or three years, the #MeToo movement started to get eclipsed by Black Lives Matter,” Levick says. “What will start to eclipse that? You need to be thinking: Who’s your tribe—and what do you want to do that’s right?” Case in point: Dick’s Sporting Goods. Few companies have struck as controversial or as high-profile a position as the Pittsburgh-based chain, which ended sales of firearms in stores in the wake of the 2018 Parkland high school shootings—and took a big hit to the bottom line. Then-CEO, now executive chairman Ed Stack has no regrets. “We had a thorough discussion about it but never wavered one bit,” Stack told our sister publication Corporate Board Member last fall. “Even after it had cost us a lot of business—it was a difficult time from a sales and earnings standpoint around this—on the one-year anniversary, we talked with our management team and our board, and we all decided unequivocally, we [would] do it all over again.” Three years and a pandemic later, Dick’s revenues hit $9.58 billion, an alltime high. CE

CALL FOR NOMINATIONS 2021

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PATRIOTS IN BUSINESS AWARD Chief Executive magazine, in partnership with Thayer Leadership at West Point, a leader in applying military leadership principles to leader development, announces the 4th Annual Patriots in Business Award, honoring the Best Companies with Veteran & Military Initiatives.

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RE SE ARC H

THE CEO-CHRO

PARTNERSHIP A new survey highlights where CEOs and HR chiefs are on the same C-Suite page—and where they’re not. The upshot? There’s room for improvement. BY CJ PRINCE DESPITE THE PANDEMIC and economic contraction of the past year, the talent war continues to rage, and CEOs want their human resource chiefs to spend more time finding, retaining and upskilling great employees, according to a new survey by Chief Executive and the Society for Human Resource Management (SHRM). But the survey, which polled 243 CEOs and 406 CHROs, also found CHROs wishing their CEOs spent more time thinking about diversity, equity and inclusion (DEI) strategy. A closer look at the findings suggests that while the differences between CEO and CHRO perspectives are fewer than their areas of agreement, there might be room for improvement around collaboration on talent strategy overall.

Finding and Keeping the Best

From the CEO’s perspective, the survey found the two biggest priorities for 2021 human capital strategy were talent availability & recruiting (56 percent of CEOs) and retention & upskilling (58.4 percent). While CHROs agreed on the latter (60.3 percent), only 29 percent of CHROs said they’d like to see more time devoted to talent availability & recruiting. That may be a matter of emphasis, says Scott Glaze, CEO of Fort Wayne Metals. “The [CHRO] attitude is, ‘We’ve got this, we’re in good shape.’ The CEO doesn’t necessarily know which specific activities the HR group is doing to keep the talent pipeline going.” Twice as many CHROs (42.7 percent) as CEOs (20.6

Which of the following issues would you like to see more time and attention devoted to by your CHRO in 2021? (Select top three.) CEO

CHRO

Talent retention & upskilling strategy Talent availability & recruiting DEI (Diversity, equity & inclusion) Organizational reinvention & innovation Wages & compensation practices Culture/Ethics Leadership transition Covid-19 vaccine impact on workforce safety and practices Business continuity/Crisis management None of these

60 / CHIEFEXECUTIVE.NET / SPRING 2021

10%

20%

30%

40%

50%

60%

70%

In which area would you like your CEO/CHRO to deliver more value? Select all that apply) CEO

CHRO

10%

20%

30%

40%

50%

60%

70%

Making better people managers Seeing around the corner for talent trends likely to disrupt our operation or industry Unlocking human capital potential of the organization for innovation Delivering on workplace culture strategy Redefining the workplace of the future Sourcing talent Developing resources to maximize return on workforce investment Assessing the climate of the organization Leveraging people data to prevent significant workplace culture issues None of the above/ Our CHRO delivers the expected value

n/a

percent) prioritized leadership transition for 2021, but when CEOs were asked to choose areas where the CHRO could add more value, the highest percentage (55.4 percent) chose “making better people managers.” “If you’re a high-growth company like we are,” says Kevin Campbell, CEO of IT firm Syniti, “you’ll continue to try to promote from within, and you’ll end up with a lot of first-time people managers. So that’s something that resonated when I read that question.” In fact, both CEOs and CHROs rated this category the highest, perhaps recognizing that bad managers lead to labor issues, low engagement, loss of productivity, lawsuits and other negative effects that damage the organization, says Dr. Alex Alonso, SHRM chief knowledge officer. Previous SHRM research has shown that the five-year cost of turnover from toxic managers exceeds $223 billion. SHRM research has also found that three out of four working Americans believe their managers are the biggest factor in establishing workplace culture. However, one in three U.S. workers claim their manager doesn’t know how to lead a team, and nearly three in 10 employees lack trust in their manager to treat them fairly. Another three in 10 workers say their manager doesn’t encourage a culture of open and transparent communication. Having great managers begins with finding great people, which continues to be a challenge across industries. “We’re having an even more difficult time in the pandemic finding talented individuals, and that’s constantly what we hear from all our senior managers, too,” says John Frye, co-president of insurance firm

Investors Heritage. That difficulty is more pronounced for the smallest companies, whose CEOs prioritized finding talent far ahead of other categories. Campbell noted that with remote work more common, retention will be even more of a challenge going forward because geography will be less of a barrier. “I think we’ll see a lot of movement this next year,” he says. John Williams, chairman and CEO of Jamison Door Company, noted that manufacturing companies have a unique challenge in that the industry has changed, requiring a mix of disparate skills. “Part of it is one step above high school shop class, but the other part is running computerized equipment that costs us $1.5 million and really take some know-how,” he says. “So there’s an image problem of attracting the kind of people who are smart enough to operate that and still work in a factory because the stereotypical factory worker is not at that level.” Diverging on Diversity

When asked what they’d like to see their CEOs spend more time on, 62 percent of CHROs, the highest percentage, said DEI, compared with 30 percent of CEOs when asked the same question about their CHROs. That may suggest HR chiefs are not getting as much buy-in from their CEOs as they’d like, but it also might indicate that CHROs are more aware of how DEI impacts business outcomes such as retention and engagement, said Alonso. “Issues of inclusion are uniquely intertwined with talent retention and engagement,”

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What are the top challenges for your team in working remotely? (Select all that apply) CEO

CHRO

10%

20%

30%

40%

50%

60%

70%

Maintaining culture Enabling collaboration/communication Managing workloads and work-life balance Fostering creativity/innovation Employee home set-ups (internet bandwidth/reliability, equipment, ergonomics, lack of space to work, etc.) People management Career advancement & recognition Training Strategic alignment/productivity Lack of childcare for staff Technology support IT/Data security Acquiring new talent where needed Project management No challenge to remote working

he says. “Over the last decade, SHRM has engaged in qualitative assessments to understand what CHROs need when creating greater retention. In just the last decade, the importance of DEI initiatives as a retention and engagement lever has more than doubled.” Glaze is in the camp of CEOs who agree with the importance of diversity in the workforce, primarily because it supports the community in which his business hopes to thrive. “If you’re invested in the community, you want it to be as strong as possible.” But he has been frustrated with the lack of progress increasing diversity among his 1,300 employees. He recounts talking with with some of the local pastors in the community, one of whom explained that “some people don’t have cars, they don’t have transportation, and unless you’re on a bus line, it’s very difficult for them to get to work.” Based on that feedback, six months ago, the company opened a new plant located along a bus route. “The idea is to bring people in at much lower barriers to entry and then train them up in that area,” says Glaze. “Once they’re at a level that’s acceptable for any of our other positions, then they can flow into any of our other plants in the area.” For smaller companies, diversity hiring becomes even more challenging, says Frye, who began his career at the exponentially bigger GE, where new employees are constantly being hired. With fewer

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new positions open, he says, he can’t afford to focus on anything but skills and fit. “You have a five-person function and you hire the wrong person in there, that can really be a problem,” he says. “Hiring mistakes can really be magnified in smaller companies. So we say, let’s find the best candidate.” Two-thirds of both CEOs and CHROs said the frequency and depth of conversation about human capital have increased in light of the social events that occurred in 2020. CEOs and CHROs differed slightly on whether the recent push for enhanced DEI has triggered new discussions about corporate citizenship. Both CEOs (37.9 percent) and CHROs (44.4 percent) said it had elevated the discussion, but that it was not the central focus of the leadership agenda; however, 22.6 percent of CEOs said it did not trigger new discussions because DEI was already at the forefront of the agenda, while only 10.2 percent of CHROs said the same. Glaze says the DEI push had intensified the company’s conversations, “and it just affirms what we were doing, but at the same time, we’re looking at other things we can do.” For example, the company has joined United Fort Wayne, which has been addressing the issue of racial equality. Asked to rate how well the company is handling inclusion, CEOs generally see more progress than CHROs. For example, the highest percentage of CEOs (26 percent) rated their company’s efforts an eight

out of 10, while 17.7 percent of CHROs said the same. Nearly double the percentage of CHROs rated efforts at just a four, or “fair,” compared with CEOs. The two survey populations differed on the question of how best to monitor potential problems in the culture. Both CEOs and CHROs cited turnover data, employee surveys and one-one-one discussions as key tools, but 57 percent of CHROs named hotlines as a primary method, while only 40.3 percent of CEOs said the same. “Because, in my view, by the time it gets to the hotline, it’s too late,” says Campbell. Maintaining culture was named by both CEOs and CHROs as the top challenge to a remote work environment. “When you’re in an office, you can walk around and chat people up, so people feel connected,” says Frye. “So making sure people feel connected and feel part of something and want to be part of that— that’s my biggest challenge.” CEOs may also want to consider getting their HR chiefs better access to data: just over half of CHROs believe they could offer more value to the CEO by leveraging people data to prevent significant workplace culture issues, but only 28 percent of CEOs named that as a priority. The Changing Role of HR

One clear area of agreement between CEOs and CHROs: the expanding role of the HR manager as a strategic partner to the CEO. “CEOs and CHROs have shifted over the years on this leadership conundrum,” says Alonso. “As the importance of talent operations has risen, so has the criticality of a good CHRO and the involvement of CEOs in creating an attractive workplace. The two go hand-in-hand if HR is to unlock the human potential needed for success in a highly personalized talent market.” A little more than three out of four CEOs said they look to their HR chiefs for views on business strate-

5 0%

Is your CHRO viewed as a strategic advisor and member of the executive management team?

Do you feel your CEO views your role as CHRO as a strategic advisor and member? 5% UNSURE

17% NO

11% NO

CEO

CHRO 84% YES

84% YES

gy and operational issues planning, though that still came in last of four other areas of value CEOs want to see their CHROs provide. Harvey Kanter, who has been CEO of retailer DXL Group for the past two years, noted that he recently elevated his VP of human resources, who used to report to the chief administrative officer and general counsel, to the role of CHRO, and she will now report directly to him. “Developing our culture and our talent is an incredibly strategic role, as opposed to just executing the tactical human resource plan or function,” he says. Indeed, the traditional tasks of human resources have become “table stakes,” says Frye. “We need to learn to develop people.” He noted that the current HR manager was hired several years ago to handle benefits, payroll, etc., but not necessarily to provide input on strategy. “That doesn’t mean he can’t get there,” says Frye. But for now, the company has hired an outside HR consultant to serve in that role and mentor and develop the current HR manager to be able to serve in that strategic advisor role. “You have to develop your people and, yeah, that makes them more attractive on the outside, but that’s fine. It’s absolutely what we should be doing.” CE

As CEO, what level of support does your CHRO currently provide? (Select all that apply) 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Act as an HR advisor and manager of talent Deliver a workplace culture strategy that differentiates our organization in a competitive talent landscape and public relations space Participate in strategic planning and related decision-making process Express views on business strategy and operational issues

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C E O E VE NT

GETTING PE PORTCO LEADERSHIP RIGHT Chief Executive assembled veteran CEOs, investors and leadership pros to get a clear view of what it takes to steer a portfolio company today. Some takeaways. BY JENNIFER PELLET VIRTUALLY EVERY INDUSTRY has been impacted by Covid, and the private equity sector is no different. From exit time horizons and operating practices to buying opportunities and availability of capital, the pandemic brought both challenges and opportunities to PEbacked companies—some of which are still unfolding. For companies in industries less negatively impacted by Covid, for example, valuations have held steady thus far but are likely to dip when the capital markets tighten. “It’s hard to believe, but the valuations that we’ve seen in the public markets are still relatively robust overall,” says David Rubenstein, co-founder and co-executive chairman of The Carlyle Group. “I think we have to recognize that there’s a little bit of a, well, I won’t use the word bubble, but if there was a correction in the public markets at some point over the next year or so of 10% or 15%, I wouldn’t be shocked.” In the meantime, the boom in SPAC activity that began in 2020 has the potential to continue. “I think that every company is being courted by multiple SPACs these days, which means that the terms are going to be strong for the owners of those assets selling into SPACS,” says Bob McCooey, SVP and head of capital markets at Nasdaq, who adds that appreciation is swelling for the method’s speed and greater flexibility. “It has felt like the new way where companies are going to go to market. There’s been an argument, ‘With [SPACs] we can just put the stock into the market and let the market

determine what the price is. And we, as the owners, can sell shares on day one or day five, or whenever we want to, we’re not subject to lockup periods. We don’t want a big increase in our stock on day one and not be able to reap the benefits.’” Another area of uncertainty is how the sudden embrace of a mostly or entirely remote workforce will play out over time. Many expect a significant number of workers to remain remote, or for a hybrid model of remote and in-person workdays to become the norm. It’s a shift that will make engaging employees and aligning them around investors’ growth goals more challenging—and it’s coming at a time when human capital management is more critical than ever, notes Ted Bililies, managing director and chief talent officer of AlixPartners. “For many years, private equity really looked to financial re-engineering to create value and, shortly after that, operational improvement,” he says. “Human capital is the next horizon, maybe the last horizon, to creating value.” Today’s portfolio CEOs will need to create an inspiring vision, set a strong personal example and lead with authenticity to succeed, says Bililies. “You’ve got to articulate the purpose and the values of the organization, you’ve got to demonstrate strong emotional intelligence, and you’ve got to be able to hold people accountable and help them develop.”

ACING BUYOUT LEADERSHIP A pioneer of the private equity revolution, The Carlyle Group’s David Rubenstein (at left) has worked with hundreds of portfolio CEOs and written two books on leadership. His advice for leaders coming in as CEO after a buyout:

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Make a difference fast—and keep it going. “You’re not going to change the company dramatically in the first 100 days, but you can show that you’re serious about making improvements. And it’s even more important what you do in the first 1,000 days, because if you don’t make

M&A ANSWERS Panelists Doug Mellinger, managing director of Clarion Capital Partners, and Phil Spencer, CEO of Mega Broadband Investments, on making mergers work. If there’s a disagreement with founders who are still present in management, how is that conflict handled? Doug Mellinger: About 75 percent of the time we buy a company, we’re buying it from a founder and a fairly large percentage of those would like to stay on. To me, it’s all about managing expectations. You have that honest conversation about, are you planning to be there for the next decade through two different owners? We’ve never run into somebody that ends up saying, yeah, I want to keep going through sales over and over again. So, they’re probably going to be in that seat for anywhere from six to 24, 36 months. And our job is to work together, to make sure that there’s a succession. We do have situations where they say they’re willing to give up leadership, and then they’re really resisting the changes. Unfortunately, we then sometimes have to part ways. We’re dealing with a situation right now where we had a founder with two kids who came as part of the deal. And the founder was just going to keep a small piece but was meddling and showing up at the office. We had to have that tough discussion, which was, ‘You’re not welcome. You’re welcome to come for the board meeting, but you’re not welcome to just show up. That’s not what the agreement was and you’re creating a problem for your kids as well.’ They’re not fun conversations, but we have to have them.

changes by then, you’re probably not going to be able to get them done.”

Communicate. “You have to be a good communicator—people in this era of social media and so forth, expect instant communications and instant responses.”

What are some of the biggest challenges in acquiring companies in an M&A rollup? Phil Spencer: The first thing that we do is, you know, we want to have a clear thesis, and we want to stick to it. You don’t want to be all over the place. You want to have it relatively narrow but broad enough that you can get deals done. Let’s assume we were going to do a hotel roll-up. Well, is it going to be luxury hotel, or is it going to be bargain brand? Is it going to be tier three, tier four cities, or is it going to be major metros? You need to make sure that there’s a cultural fit and that you’re capable of shifting the culture if it’s not where you want it to be. If I’m trying [for a certain degree of professionalism] in the organization and buying a company where they were in flip-flops and T-shirts, well, that’s going to be a struggle. Because in the end, when you’re bringing together five or six different companies, you’ve all gotta be pushing in the same direction. What do you see happening with valuations over the next few years? Doug Mellinger: There’s a lot of capital out there right now. You’ve got Covid-affected industries that will come back and valuations will come up on those, but it’s actually more about the credit markets. So, what people need to look for if they want to project out over the next couple of years is determining the point at which cost of capital goes up. At what point will there not be as much credit available? You’re going to need to put more equity on the table. And, at some point when cost of capital goes up, then valuations will come down. Right now, we’re living in a free-capital world and valuations are going to stay high for quite a while. That will change at some point, but it could be five or seven years from now. CE

Dig in. “Roll up your sleeves and get

Don’t hide the bad news. “Tell the

in there working. People do it symbolically by rolling up your sleeves. But you have to say, ‘I am one of you. I’m in the foxhole with you.’ That can go a long way.”

private equity investors, ‘Look, this is not working out. We’ve got to do something better.’ Give people bad news up front and be honest about it. Honesty goes a long way.”

CHIEFEXECUTIVE.NET / SPRING 2021 / 65

STR AT EGI C C FO SU MMI T

THE FUTURE OF

THE FINANCE FUNCTION Getting your CFO to step up and be your strategic partner may well determine how successful you are at creating value long-term. BY JENNIFER PELLET

TECHNOLOGICAL DISRUPTION IS AFFECTING ALL CORNERS

“If you’re an accountant or finance person, not only do you have to count the beans, but you’ve got to grow them too.” —Tom Kelly, Director, Oracle NetSuite

“in any kind of M&A activity or any kind of pivot… it’s not just producing data, it’s producing valuable data.” —Cari Thomas, CFO, Quatris Healthco

of business, and finance is no exception. Cloud applications, AI and machine learning make it possible to automate many numbercrunching tasks, enabling businesses to lean on reporting functions that once focused primarily on balancing the books to inform strategic decision-making. More and more CEOs are doing just that. “If you’re an accountant or finance person, not only do you have to count the beans, but you’ve got to grow them too,” says Tom Kelly, director of Oracle NetSuite. “Organizations need to move from spending all the time closing the books and more time being able to interpret that data.” At Quatris Healthco, the events of the past year underscored the value that data-crunching technology brings to the table for CFO Cari Thomas. “Our reliance on our financial system as we needed to pivot quickly was critical,” she says. “We put into place a lot of different tracking within our ERP so that we could monitor customers most impacted by Covid, and we enabled reporting throughout the organization. So, if a customer were to call in, a support representative would know, ‘Hey, this clinic’s really struggling,’ and treat the scenario or the situation differently.” The ability to generate insights like that, however, hinges on how well organizations have been able to get more efficient at routine tasks like applying cash, paying vendors and paying employees. “While critically important, when you look at the steps that go into all of these things, they are ripe for automation,” says Kelly. In fact, Accenture estimates that automation technologies can take on between 60 to 80 percent of backward-looking accounting activity, freeing up finance teams to focus on data-driven initiatives that drive profitable growth. Quatris is four years into that journey, explains Thomas, whose company recently completed an accounts receivable automation stream. “We’re not applying cash any longer, not scanning checks any longer,” she says. “It’s about being able to focus my time, my controller’s time and that of people across the organization on what steps we’re going to take to grow the business based on the data versus spending all of your time with the inputs. Now, we’ve got the data.”

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BEYOND THE NUMBERS Insights from CFO Leeny Oberg, whose strategic partnership with the late Arne Sorenson, former CEO of Marriott International, helped build the company into one of the world’s largest and most successful global organizations. On lessons from the pandemic… In a situation like the pandemic, it became really clear that you have to be willing to make decisions without perfect information, and you must make them quickly. That probably is a muscle that, at many big companies, doesn’t always get used perhaps as much as it should. For all of us at Marriott, it was a good reminder that we’ve got to be really good at that. On the ideal CEO-CFO relationship… I want to make sure that I do everything I can to help him or her see the pitfalls, the good things, the bad things, the possible outcomes, look at it from all sides of the equation, and then go like crazy to execute it successfully. When I think about where I can add the most value, it is really about helping to analyze, evaluate and structure strategies such that you were getting the economic value that you want for the enterprise. Also, you’re trying to accomplish what you’re trying to accomplish for, in our case, the customers, the hotel owners and the associates, but with this underpinning of, it’s got to have an economic value equation that hunts, so that sources and uses of capital in the market will say, “Yes, I get that. I think that’s valuable, and I understand why.” To me, that intersection of the two is, frankly, I find it delicious. On allocating capital… Being known as “Ms. No” is not always the fun part. But it gets back to really being able to explain why, explain the strategy, explain the choices. A company can’t have 30 priorities and throw capital at all 30 of them effectively

with the same amount of effort. It’s not possible. There have to be better defined priorities about where you think you’re going to get the most value. Wouldn’t you be better perhaps doing 10 projects and doing them really, really well and maybe getting more bang for your buck? Those are the kinds of discussions at the senior table where the CFO can be quite useful in helping evaluate where are we going to get the most value and advantage with our various constituencies, including the supply and demand for capital. On M&A lessons from Marriott’s acquisition of Starwood… First and foremost, you’ve got to make sure you’re paying a good price for it. For the first number of months, especially since we had another bidder try to come in and top us out and take the deal away from us, we were overwhelmingly focused on what is the right way to think of the value of this combined enterprise? That’s fascinating work and probably the dream of a lifetime for most CFOs in terms of really being able to take your ideas and then translate them into economics and think about how the market was truly valuing each company on that day. Really exciting. But you had to always keep the big picture in mind: What was our ultimate goal? You, of course, don’t want to pay too much, but you also ultimately have to say, “Are we making sure that we are going to really get the value out of this merger that we think is there, and are we looking hard at the reasons why?” Every single leader involved in that deal was incredibly involved. CE

“When I think about where I can add the most value, it is really about helping to analyze, evaluate and structure strategies.” —Leeny Oberg, Executive Vice President and CFO, Marriott International

‘LET THEM SHINE’ Thomas Song, CFO of Aimbridge, on delegating during a crisis. “As a leader, it’s tempting sometimes to say, ‘Hey, listen, I have to be involved in everything.’ But, actually, the opposite is true. You have to really prioritize more than ever before what you’re going to get deeply involved in and then trust your team and let them shine. They want to help more than ever on some of these critical matters, and you don’t want to be the bottleneck. It’s impossible for larger organizations to have that clarity and objectives and to execute against those objectives if you don’t trust one another.”

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P L A N E ADVANTAG E

AVIATION

GAME CHANGERS Meet eight companies bringing innovative ideas to private aviation. BY DALE BUSS

ABOVE: Jet It founders Glenn Gonzales and Vishal Hiremath TOP: Eviation’s all-electric commuter airplane, “The Alice”

EVERY PRIVATE-AVIATION startup wants to become the next Wheels Up, which expects to go public at a valuation of more than $2 billion in the second quarter after merging with a special-purpose acquisition company. That would be more than twice the 2019 value of the seven-yearold outfit, which has jetted to the head of a fleet of startups that want to become the Uber or Airbnb of their industry. Business-aviation activity has rebounded well in the new year and is expected to continue to climb strongly as work travel recovers while use of airline flights lags. But entrepreneurial innovation will be required for corporate aviation to solidify its shortterm advantage for the long term—whether it’s in electric planes, vertical-take-off-andlanding (VTOL) aircraft, sustainability initiatives or digital scheduling to improve service and capacity utilization, with wrinkles on what Wheels Up is providing. Here are thumbnails on eight startups that could prove to be difference-making

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innovators in the industry, in the views of private-aviation experts interviewed by Chief Executive—and if you listen to the companies’ founders. 4Air: Sustainability narratives are catch-

ing up with private aviation in this Boston-based startup offering to evaluate the environmental impact of charter operations, corporate flight departments and the like, and then arrange for offsets of carbon emissions and other climate-related pollutants. The weeks-old company got some instant credibility in February when Clay Lacy Aviation, a big private-jet operator, agreed to a partnership with 4Air. “In the past year, we’ve seen tremendous growth in the conversation around sustainability in aviation and environmentalism in purchasing decisions,” says Kennedy Ricci, an online entrepreneur and son of private-aviation pioneer Kenn Ricci. “We recognized a big need to create comparability and transparency.” The company’s programs range from “Bronze,” which allows participants to become “carbon neutral” by countering all emissions with “verified carbon-offset credits” such as contributions to forest-protection or renewable-energy efforts, to

“Platinum,” for “climate champions” that support the new, not-for-profit Aviation Climate Fund. “The fuel burn of a flight determines its carbon footprint, and our customers buy a number of carbon offsets that equate to the footprint,” Ricci says. “The average cost of this for a cross-country flight will be a couple hundred dollars. The person in the back of the plane will know that they’re flying more sustainably and increasing support for long-term sustainability efforts.” Archer: United Airlines said early this year it plans to buy up to 200 flying taxis from this Palo Alto, California, startup. That imprimatur prompted Archer co-founders Brett Adcock and Adam Goldstein to announce a plan to go public through a combination with a SPAC in a deal that values the combined company at about $3.8 billion. Archer plans to begin production of its taxis in 2023 and launch consumer flights the following year in planes that will be capable of flying 60 miles at 150 miles an hour and nearly halve carbon emissions for passengers traveling from Hollywood to Los Angeles International Airport. “There’s an ability to build one of the 10 most significant businesses in the world,” the co-founders write, “and more importantly help drive the world to a zero-emissions future.” Eviation: Singaporean billionaire Richard Chandler took control of Israel-based startup Eviation a couple of years ago because he believed in the promise of The Alice, which the company is billing as the first real-life practical, all-electric commuter airplane. It’s designed to take nine passengers up to 650 miles at a cruise speed of 275 miles per hour on a single battery charge. Eviation is promising to cut direct operating expenses by up to 70 percent compared with high-end turboprops or light jets. Just as important is its sustainability narrative, which includes “dramatically lowering the industry’s environmental impact in noise emissions and materials used,” says Eviation CEO Omer Bar-Yohay. “We hope to see both passengers who happen to be electric-propulsion enthusiasts and those

who are indifferent have equally excellent experiences on their first flight.” Jet It: The three-year-old company offers private flights in North America and hybrid ownership of HondaJet aircrafts, with a fleet that is expected to reach 10 by the end of the year, making it the largest operator of those planes. Two pilots always fly the six-person aircraft on flights that typically are 90 minutes to two hours. Besides the small jet, which offers a cabin experience much like those in larger planes,

Jet It’s main innovation is to offer owners or renters a plane for an entire day instead of by the hour. “Our study showed that most people wanted the opportunity to have two business meetings in a day in two different cities and return home the same day,” says Jet It co-founder and CEO Glenn Gonzales, who with co-founder Vishal Hiremath was a field executive for Honda Aircraft. “We realized there is a huge gap in the market for the customer that can afford a larger and more entrenched aircraft but can’t justify the expense. In most cases, business flyers are rationing their hours: Do they fly commercial or fly in a business jet? We take the headache out of the equation.”

ZED’s luxurious 29-seat jet features zero-gravity seats.

Lilium: This startup based in Munich,

Germany, is working on an all-electric “sky taxi” that performs VTOLs, is powered by 36 all-electric jet engines mounted on its flaps and can travel up to 300 kilometers per hour on one charge in a plane with no tail, no rudder and no propellers. The experience features gull-wing doors and panoramic windows. A Lilium Jet demon-

CHIEFEXECUTIVE.NET / SPRING 2021 / 69

VeriJet’s fleet of six-passenger Cirrus SF-50 Vision Jets can be manned by a single pilot assisted by artificial intelligence.

strator flew in May 2019, over Germany, but the company announced a plan early this year to develop a network of at least 10 “vertiports” in the United States. A pilot will steer the airplane for now, but the goal is to make Lilium autonomous in the future. And Lilium has some DNA behind that vision: Its $375 million in funding to date features $35 million from Baillie Gifford, the century-old Scottish investment-management firm that is also Tesla’s largest outside investor. VeriJet: This Uber wannabe of the skies is banking on its fleet of six-passenger Cirrus SF-50 Vision Jets, which have engines based on the cruise missile and carbon-fiber fuselages, and fly low and slow, efficiently, quietly—and safely so far, after more than 44,000 dispatches of the Minnesota-made aircraft without major incidents. VeriJet’s aircraft require only one pilot, who is assisted by artificial intelligence. If necessary, passengers can hit an emergency button, AI lands the jet, and there’s an ejection parachute for everyone on board. The company has started by offering flights out of Tuscaloosa, Alabama, to any airport within 800 miles for $500 a seat per hour. The price “is typically half that of other light jets,” says Richard Kane, VeriJet’s chairman and CEO. “My goal is to pull people off United and Delta who are stuck there.” Booking is by smartphone app, with Kane’s goal for VeriJet to need only two hours’ notice after expansion across the United States and Canada. Kane is counting on “carbon shaming” to help drive customers to efficient networks like his in an eventual jump to Europe. “A number of family offices there are interested in our service so they can fly quiet—and green,” he says.

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XTi Aircraft: This is another startup with private planes that will take off like a helicopter, but XTi’s point-to-point aircraft are supposed to fly at the speed of a jet from sites in urban downtowns. The Denver-based company already has dozens of orders for its six-seat, TriFan 600 hybrid-electricVTOL aircraft as it refines its concept, technology and funding. Late last year, XTi also announced development of a smaller TriFan 200 VTOL aircraft, designed as an unmanned vehicle that will operate autonomously and transport up to 500 pounds of cargo on missions of more than 200 nautical miles. ZED Aerospace: Aiming to fill the gap be-

tween commercial airlines and private jets, Miami-based ZED is upgrading a 75-seat Bombardier CRJ700 aircraft to accommodate just 29 passengers. “Our approach was to take existing private jets like Airstream and share those seats, but a Gulfstream isn’t made for commercial aviation or that level of utilization,” explains ZED Founder and CEO Zander Futernick. “So, we started with a commercial airliner.” At the same time, he says, “Covid really ushered in a paradigm shift because people who wouldn’t consider private aviation before are now considering it. Our target is people who live and dress and eat well and live in multiple cities but don’t fly private.” The time value of utilizing small airports will be part of the company’s appeal, as will its fees of $250 to $500 per hour per seat. Swiss-designed interior sumptuousness will be ZED’s calling card, including an eight-passenger super-premium cabin featuring zero-gravity seats with thick mattresses for sleeping and a 21-seat rear space that includes a rotating menu of fusion tapas, sushi-bar selections, a curated list of alcohol and other beverages, a complimentary iPad and virtual-reality headsets. “Our dual-class approach has never been done before in such a small cabin,” Futernick says. “We’re offering choice.” CE

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GETTING TO THE PANDEMIC FINISH LINE

It’s not a sprint, so pace yourself, says this CEO and 59-time marathon runner.

ALONG WITH SPENDING CHRISTMAS with my family, running the New York Marathon in November has been one of the ways that I most memorably close out a year. The 26-mile run from Staten Island to Midtown Manhattan didn’t happen late last year, of course, due to the Covid-19 pandemic, which has been a marathon on its own for nearly everyone. As U.S. Olympian and long-distance runner Jeff Galloway once said, a marathon can feel negative, yet he added, “but it’s just as easy to frame it as a positively challenging journey.” Positivity is central to how CEOs need to lead hundreds or thousands of employees through this next difficult stretch. Even after this crisis, executives will have to manage other endeavors—like developing new products and creating industry categories—that are anything but a sprint. I have run more than 50 marathons since 2006, and I guided my last company, Motricity, through the 2008–09 recession and then into the public market only two years later. These types of lengthy, challenging experiences taught me valuable leadership lessons that have been useful in 2020 and will help me create success in 2021 and beyond. Practice active empathy

Ryan Wuerch is the founder and CEO of Dosh, a cashback app on a mission to democratize advertising while moving billions of dollars to millions of people.

Getting to the finish line—a Covid-19 vaccination—is going to be grueling for most people due to health dangers, economic worries and endless Zoom meetings. It’s a lot. Consider that 53 percent of employees during the pandemic have felt emotionally exhausted. CEOs must be empathetic toward employees by participating in events with them. Nothing says, “We are all in this together” like actually doing things together. Each week during the pandemic, a different employee of mine leads the virtual all-hands meeting and not only runs down the updates but also asks an executive or a department lead to share more about themselves. These

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meetings help us all feel more tightly knit and inclusive while we work virtually. We also established a company-wide Spotify playlist. And it’s just not our millennial staffers spinning tracks–it’s filled with the favorite jams of every employee and executive! Share ‘why us?’

Each week, I ask someone different to talk about why they chose to work with our company. The experiences shared have been amazing—collectively, we learn so much. For example, we’ve had people reveal how bonding with an employee or two during their job interview tipped the scales. We’ve learned about diverse professional histories. And one employee explained how our company’s mission of moving wasted ad dollars back into regular folks’ pockets resonated deeply with childhood experience of surviving on food stamps and clipping coupons. Even over Zoom, these empathetic exchanges recharge our batteries. Carving out time in these forums for personal storytelling inspires employees to keep putting one foot forward to drive their personal performance and the bottom line. Accentuate the positive

This long pandemic has stretched your employees in ways they have never experienced before. They are working from home with their kids learning remotely. They are figuring out how to make a virtual sale instead of in a conference room. They’ve become ITpro wannabes at home out of necessity. These are profound “asks” we are making of our employees, and this health crisis appears to have plenty of pavement ahead. That’s why it’s more important than ever to celebrate the wins and share relevant experiences to embolden a hopeful culture. Jack Nicholson—certainly more recognized for winning Oscars than endurance running—may have put it best about managing life’s struggles: “Accentuate the positive, that’s what I say. It’s a trick, but it works.” CE

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Spring 2021 Chief Executive Magazine

Articles inside

THE CEO-CHRO PARTNERSHIP

CANCEL CULTURE CONFIDENTIAL

CHIEF EXECUTIVE’S 2021 BEST

GETTING PE PORTCO LEADERSHIP RIGHT

IT’S GROW TIME

ARE YOU THE CEO YOU NEED?

IT’S COMPLICATED