Winter 2022 Chief Executive Magazine by Chief Executive Group

THE VOICE OF AMERICA’S CEO COMMUNIT Y | WINTER 2022

ED BASTIAN CEO, DELTA AIRLINES

COVID INFLATION SUPPLY CHAIN HIRING SHORTAGES TAXES POLITICS REGULATION

WINNING

2022 HOW YOU’LL THRIVE NO MATTER WHAT COMES WITH: GEN. STANLEY MCCHRYSTAL ON RESILENCE MARSHALL GOLDSMITH ON RAISING THE BAR ADAM ARON ON AMC’S WILD RIDE AND MUCH MORE...

America’s top state for talent

Virginia continues to raise the bar when it comes to talent development. Virginia Talent Accelerator Program: Fully customized workforce recruitment and training solutions — at no cost to eligible companies Tech Talent Investment Program: America's largest investment in computer science education ($2 billion in new public/private funding), doubling annual grads in CS and related fields Computer Science in K-12: First state to incorporate computer science, including coding, as a mandatory part of the curriculum for all public school students (K-12)

C O N T E NT S W I N T E R 2022 No. 313

FEATURES COVER STORY 22 ‘WE KEEP CLIMBING’ Delta Air Lines CEO Ed Bastian has seen it all, leading his team from the brink of bankruptcy to the top of its industry. But nothing fully prepared him for the disaster of the pandemic. “I have learned more in the last 18 months,” he says, “probably than the last 18 years.” His takeaways. Interview by Don Yaeger

LEADERSHIP 32 TOUGHER, FASTER, SMARTER Challenges and threats may be inescapable, says Gen. Stanley McChrystal, but your ability to move through them—and thrive— is very much in your hands. The trick is building a strong Risk Immune System. Here’s how. By Dan Bigman

AFTER-ACTION REPORT 40 ‘THE LIGHTS WERE OFF’ 22

Adam Aron, chairman and CEO of AMC Entertainment, takes us inside the pandemic’s wildest ride—the fight to save the world’s largest theater chain. As told to Dan Bigman

TOOLBOX 47 ACCELERATING IMPROVEMENT It’s not enough to know what your customers want now; you’ve got to anticipate what they will want and deliver on it. Here’s how. By Dale Buss

CEO LEADERSHIP SUMMIT 58 UNLOCK YOUR TEAM’S POTENTIAL

CEO OF THE YEAR GALA 62 CELEBRATING MERCK’S KEN FRAZIER Business leaders gathered to honor an exemplary peer.

CEO ROUNDTABLE 64 THE NEW ART OF DECISION-MAKING Inundated with information, pressed for time and surrounded by risk—leaders weigh in on the challenges of making judgment calls in a time of crisis. By C.J. Prince

COVER PHOTO: ERIK TANNER

C O NTE NT S EDITOR Dan Bigman MANAGING EDITOR Jennifer Pellet DIGITAL EDITOR C.J. Prince ART DIRECTOR Gayle Erickson PRODUCTION DIRECTOR Rose Sullivan CHIEF COPY EDITOR Rebecca M. Cooper CONTRIBUTING EDITORS Dale Buss, Daniel Fisher,

Craig Guillot, Marshall Goldsmith, Kelly Goldsmith, Patrick Lencioni, Jeffrey Sonnenfeld

EXECUTIVE EDITOR, STRATEGICCXO360

Emily DeNitto DIGITAL PRODUCER Alessandra Cooper

VP, PUBLISHER, CHIEF EXECUTIVE

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

DEPARTMENTS 6 EDITOR’S NOTE

The Zoom-Minute Manager

DIRECTOR, BUSINESS DEVELOPMENT

Lisa Cooper | 203-889-4983 lcooper@chiefexecutive.net MANAGER, STRATEGIC PARTNERSHIPS

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

8 RESEARCH

2021 Ranks Among the Top 5 Best Years

12 LEADERS 12 Feeling the Burnout By Dale Buss 16 Law Brief \ Daniel Fisher Dead Suit Walking 18 On Leadership \ Jeffrey Sonnenfeld CEO Voices: Fact vs. Fantasy 19 Coaching Yourself \ Marshall Goldsmith & Kelly Goldsmith Higher Bars

CHIEF EXECUTIVE GROUP EXECUTIVE CHAIRMAN

Wayne Cooper

CHIEF EXECUTIVE OFFICER

Marshall Cooper

CHIEF CONTENT OFFICER

Dan Bigman

DIRECTOR OF EVENTS & PUBLISHER, CORPORATE BOARD MEMBER

Jamie Tassa

VP, PUBLISHER, STRATEGICCXO360.COM

KimMarie Hagerty

DIRECTOR OF MARKETING Simon O’Neill VICE PRESIDENT Kendra Jalbert

52 ECONOMIC DEVELOPMENT Regional Report: West & Southwest From a surge of IPOs in Washington and manufacturing momentum in Utah to greater growth in smaller Texan cities, it’s an exciting time in the West and Southwest. By Craig Guillot

68 PLANE ADVANTAGE Navigating the Jet Reset At a time when planes and pilots are scarce, knowing the ins and outs of your private aviation options is critical. A primer. By Dale Buss

HR MANAGER / OFFICE ADMINISTRATOR

Patricia Amato

RESEARCH DIRECTOR Melanie Nolen DATA SERVICES DIRECTOR Jonathan Lee DIRECTOR, DIGITAL PRODUCTS Leigh Townes ASSISTANT CONTROLLER Brittney Smith STAFF ACCOUNTANT Marian Dela Cruz MARKETING MANAGERS

Simone Bunsen, Nicole Shorette EVENTS & MEMBERSHIP MANAGER Rachael Gaffney

72 LAST WORD Disrupt Yourself Is success making your company stagnant? Try looking at your business through a startup’s eyes. By Jeff Pozen

EVENTS COORDINATOR KP Wilinson DATA ANALYST Denise Gilson CLIENT SUCCESS MANAGER Victoria Campbell CLIENT SUCCESS COORDINATOR Aftan Walls STRATEGIC PARTNERSHIPS ASSOCIATE

Lara Morrison

RESEARCH ANALYST Isabella Mourgelas

Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 313, Winter 2022. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group LLC at 105 West Park Drive, Brentwood, TN 37027. Wayne Cooper, Executive Chairman, Marshall Cooper, CEO. © Copyright 2021 by Chief Executive Group LLC. All rights reserved. Published and printed in the United States. Reproduction in whole or in part without permission is strictly prohibited. Basic annual subscription rate is $99. U.S. single-copy price is $33. Back issues are $33 each. Periodicals postage paid at Brentwood, TN and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group LLC at 105 West Park Drive, Brentwood, TN 37027. Subscription Customer Service Chief Executive Group, LLC P: 615-592-1380 E: subscriptions@chiefexecutive.net 105 West Park Drive W: ChiefExecutive.net/magazine Brentwood, TN 37027

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Like Rebecca Corbin Challenging times drive big decisions and none bigger than what to do with your business when a global pandemic hits. Assessing the situation quickly, Rebecca decided to invest in growth to support her firm’s clients through deeply challenging times. She had choices about where to grow her business and she chose Connecticut; to build a new headquarters, double the size of her team and invest in the future of our state. What’s next?

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ED ITOR ’ S NOTE CHIEF EXECUTIVE OF THE YEAR

THE ZOOM-MINUTE MANAGER GROWING UP, MY MOM WAS AN AMBITIOUS, on-the-rise Madison Avenue star in the trade-show business. Global travel, exacting deadlines and a demanding family didn’t leave a whole lot of spare time to study Drucker. Thankfully, there was Ken Blanchard and Spencer Johnson. Their slim volume, The One Minute Manager, was the only business book I ever remember in our house. As almost everyone reading this knows, they boiled down the essence of what it is to manage people through the fable of corporate leadera who get impossible things accomplished by briefly enunciating goals for their reports, rewarding wins with specifics (“one-minute praisings”)—or lightly rapping knuckles with “one-minute reprimands” (later rephrased as “redirections”). Then, it’s on to setting new goals, and repeating the process. It’s about being clear, building structure, following up and caring enough to hold people accountable—compassionately. It’s also blessedly concise, and mom wasn’t the only one who found that useful. Since it was first published in 1982, The One Minute Manager has sold more than 15 million copies and been translated into 47 languages. Given that 2022 is the 40th anniversary of the book, I reached out to Blanchard and his wife and business partner, Margie Blanchard. The big takeaway: They’re convinced their techniques are far more important now—in the age of Zoom—than when the book was published in 1982. ZOOMING AND BOOMING

The Blanchards, it turns out, are huge fans of Zoom. They think it’s a boon to leadership, a seemingly contrarian take for fans of “management by walking around.” In reality, the Blanchards say, many leaders don’t actually spend all that much time face-to-face with the people they lead—especially in large, decentralized organizations. “The great advantage of Zoom is that you can interact with your people much more than waiting to be face-to-face,” says Ken. That kind of engagement is more essential than ever, they say, given the current volatile state of the world—and the current talent market. Helping your people feel good about what they do is essential, and helping them feel good is all about building structure—and making time—for them. “The great advantage of Zoom is that you can meet more frequently and develop that esprit de corps that you can’t normally when you’re always running around,” says Ken. Too many leaders are in meetings all the time, “rather than taking care of their people. Their number one responsibility is their people, to bring out the best in them. “I think the big thing that we’ve learned is to move from top-down leadership to side-by-side leadership,” says Ken. “And that’s what the younger generations want. They don’t want your job, but they want to be well informed. They want a partnership kind of thing. We call that sideby-side leadership. And people go, ‘Wow, that’s really right. That’s what we need now.’” In 1982, too. Just ask Mom. —Dan Bigman, Editor

6 / CHIEFEXECUTIVE.NET / WINTER 2022

2022 SELECTION COMMITTEE ADAM ARON President and Chief Executive, AMC

KEN FRAZIER Executive Chairman Merck 2021 CEO of the Year

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.

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

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

2021 RANKS AMONG TOP 5 BEST YEARS ON RECORD

ADVANCECT advancect.org 5

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. FOR 19 YEARS NOW, WE’VE BEEN TRACKING CEO sentiment on a monthly basis—the largest such poll in the nation. Hundreds of CEOs, each month, answer three simple questions as part of our CEO Confidence Index: “How do you rate the current business environment?”, “What do you forecast business conditions will be by this time next year—and why?” and “How will this all affect your strategy and bottom line?” Despite the tumultuous series of events of the past couple of years, the data shows things aren’t that bad after all—particularly when compared to sentiment registered during the Great Recession. At that time, optimism dropped to 1.5 (February 2009), measured on a 10-point scale where 10 is “Excellent” and 1 is “Poor.” It settled at 3.4 on average for both 2008 and 2009. This year, our leading indicator ended with a 6.9 average, just on the cusp of “Very Good” according to our scale points. The lowest reading of 2021 was 6.4, which was in November, when many CEOs conceded that they were unable to forecast when issues such as supply chains, inflation and talent shortages would subside amid increased taxes and government spending. It seems, they said, that everything was impeding growth. Yet, there was growth. Most CEOs participating in our monthly polls agreed: demand has been at levels unseen in a long time. And across all sectors, which is probably why 2021 is the fourth best year on record since we began tracking CEO sentiment in the fall of 2002—behind 2018 and 2017, both averaging 7.1, and 2004 at 7.5. And while neither inflation nor the emergence of new Covid-19 variants has deterred that demand so far, most of you remain alert for what’s to come in 2022. “I thought we’d be done with the pandemic and back to a post-Covid normal by the end of 2021,” says Bob Green, president of Pittsford, NY-based marketing agency The Verdi Group, echoing general sentiment among polled CEOs in December. “Now I’m not even sure if we’ll have a ‘new normal’ by this time in 2022.” —Melanie Nolen, Research Editor, and Isabella Mourgelas, Research Analyst

7.27 6.97 7.07

6.72

6.89 6.77

6.61 6.50 6.36

JAN '21 FEB.

MAR.

APR.

MAY

JUNE

JULY

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

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CEO 100 chiefexecutivenetwork.com/ceo100 17 CHIEF EXECUTIVE NETWORK chiefexecutivenetwork.com 9 DIRECTOR FUNDAMENTALS PROGRAM boardmemberinstitute.com/ directorfundamentalsprogram 15 FLIGHTSAFETY INTERNATIONAL flightsafety.com 7 INVEST PUERTO RICO Investpr.org 10, 11 MCCRYSTAL EVENT chiefexecutive.net/generalmcchrystal 57 MELMARK NEW ENGLAND melmark.org 20, 21 MISSOURI ONE START missourionestart.com 3 NEXT LEVEL LEADERS nextlevelleadersseminar.com 30, 31 SENIOR EXECUTIVE NETWORK seniorexecutivenetwork.com INSIDE BACK COVER

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7.27

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VIRGINIA ECONOMIC DEVELOPMENT PARTNERSHIP vedp.org INSIDE FRONT COVER, PAGE 1

CEO FORECAST OF BUSINESS CONDITIONS 12 MONTHS FROM NOW

7.08

ARKANSAS ECONOMIC DEVELOPMENT COMMISSION arkansasedc.com OUTSIDE BACK COVER

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LE AD E R S

FEELING THE

BURNOUT

The past two years have been a breeding ground for anxiety, stress and crisis fatigue in the workplace—and CEOs are just as vulnerable as their people. Some thoughts on keeping healthy. BY DALE BUSS

“You’re 24/7, and a lot of people are depending on you. It’s often fairly lonely.” —Greg Brenneman, Former CEO, Continental Airlines

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MICHAEL SINENSKY USED TO MEET REGULARLY WITH business-leader peer groups at the board of the Manhattan Chamber of Commerce, the New York City Hospitality Alliance and the local Young Jewish Professionals chapter. The pandemic put an abrupt stop to what had long been venues for sharing war stories and batting around solutions with sympathetic peers. “I don’t remember the last time I had an in-person meeting with any of these groups, where I used to go and lean on people,” says the CEO of WeShield, a medical-equipment provider he launched in the shadow of the pandemic after the coronavirus shut his three restaurants. “That has removed all the human interactions and feelings that help me cope.” Sinensky isn’t alone in dealing with the stresses and strains creating an unprecedented era of CEO burnout. Today’s business leaders answer to a wider range of stakeholders who wield greater influence than ever before and do so in a global ecosystem vulnerable to domestic and foreign market gyrations. And recent years have added a host of new hurdles, including pandemic chaos, the remote-work imperative, pushes to improve diversity initiatives and address social issues, supply-chain difficulties and acute squeezes from inflation and labor shortages. What’s more, all of this must be accomplished while also rallying employees around the mission at hand. “CEOs are burning out from trying to be strong and optimistic for employees over the past two years and feeling like they can’t be their authentic selves and show their own fears and vulnerabilities,” says Teresa Hopke, CEO for the Americas of Talking Talent, an executive-coaching firm.

Greg Brenneman, who turned around failing Continental Airlines in the 2000s as CEO, wrote about his own struggles in the corner office in Right Away & All At Once. “You’re 24/7 and a lot of people are depending on you. It’s often fairly lonely. The pandemic made that a little tougher.” Part of the problem, he says, is that CEOs’ main role is to “absorb fear and exude hope.” Lately, they’ve had to max out on both. So, how are CEOs coping—and how should you be coping? Chief Executive reached out to CEOs, performance experts and coaches for tips on staying fresh and avoiding the burn in a very stressful time. Here’s some of what we heard: Care for yourself.

Glen Hartman, North America president for Accenture Interactive, advises fellow chiefs to “prioritize and embrace self-care and caring for others in what’s sure to be another unpredictable year.” That may seem like common-sense advice, but many CEOs “haven’t been prioritizing putting on their own oxygen masks first through self-care and restoration,” Hopke says. “You can’t pour from an empty cup, so the impact of self-neglect is that they have nothing left to give others or themselves.” The bare minimum in that regard is getting enough rest, maintaining proper nutrition and providing dedicated time for exercise and meditation, says Tim Russell, partner with the Tolan Group search firm. But some chiefs go way beyond. Casey Watkins, CEO of Quility, an online provider of life insurance, gets on his mountain bike at least three to four times a week. “It forces me to take my brain and not concentrate on anything else but what I’m doing,” he says. “And it happens to be good for me physically. You can’t underestimate the value of the energy and the clarity you can get from that.” He also schedules a few weeklong vaca-

tions throughout the year. “I’m refueled by the disconnect, and I recharge. Every single time I come back I have clarity about something very important in our business.” Sanjay Rishi includes himself in his “no-meetings Fridays” policy for Work Dynamics, a consulting division of the JLL real-estate firm, which “help create the space for deep work time to focus on pressing tasks.” The CEO also uses Headspace, a meditation app that JLL employees can access for free, “to help manage feelings of stress and anxiety as they come.” Hold on to purpose.

“Every CEO works hard,” says Cameron Yarbrough, CEO of the Torch Leadership Labs. “But if you’re working hard on something that you don’t genuinely love, you’re much more likely to burn out doing it.” Craig Scheef understands this. He’s CEO of Texas Security Bank, where employees spent the pandemic helping business owners “when many of them literally were gasping for air.” Internal surveys showed employee satisfaction was higher in 2020 than preCovid. “Burnout for me is less likely because I feel we’ve got this noble cause and a purpose,” Scheef says. “If you feel like you’re just trying to make money and move into a bigger house in a nicer neighborhood, and you’re on a glide path to retirement, you’ve already reached burnout.” Ideally, CEOs should anchor to something even deeper, says executive coach and business psychologist Russell Thackeray. “Most organizations have a sense of purpose, but what they miss is a sense of meaning,” he says. “It’s a very good thing for stress reduction to do something bigger than yourself.”

“I’m refueled by the disconnect, and I re-charge, and every single time I come back I have clarity about something very important in our business.” —Casey Watkins, CEO, Quility

Get rebalanced.

Brenneman, now executive chairman of private equity firm CCMP and lead director at Home Depot, preaches that business leaders neglect faith, family and fitness

CHIEFEXECUTIVE.NET / WINTER 2022 /

LE A D ER S

at their own risk. “Live life holistically through good and bad times. People who do that have a different aura about them, a different way of carrying themselves and keeping things in perspective.” “Don’t let your position become who you are,” advises Brenneman, who now consults with business leaders on what he calls “a pathway to purpose and meaning.” (For more, see p. 60.) “Stand for what you stand for. Part of that is being CEO and your occupation. But that needs to be what you do, not who you are.” Scheef believes that if CEOs “are paying attention to all the areas of your life, then the likelihood of burnout is less. If you really get off into just one area, even health and fitness, that makes you more prone to burnout. Or if your marriage and family are kind of off, that becomes a distraction, and work is a bit more difficult.” Repair your schedule.

Cesar Herrera, CEO of Yuvo Health, says his mental health starts with his calendar. “I’m very intentional with it, or it will rule my life versus the other way around,” he says. “I work out each day between 6:30 and 7:30 a.m., and I make it incredibly clear to everyone on my team at all levels that no one can take that time away from me.” Achieving a more orderly schedule can be helped by something as simple as “cutting the number of endless meetings,” says Thackeray. “Stop wasting your time and everyone else’s.” Meet with peers.

Find ways around the lack of physical get-togethers with peers and mentors that have waned since the pandemic. “Physical isolation leads to depression, which can ultimately lead to burnout,” Russell says. “Being able to associate and network with those of like title and position can help bring clarity to issues within [CEOs’] respective organizations as well as provide an outlet for a social connection.” Gather good people.

This means inside and outside the company. Inside, Watkins surrounds himself with, “people who are amazing and supportive.” Hopke

14 / CHIEFEXECUTIVE.NET / WINTER 2022

suggests hiring an executive coach who can help a CEO “be more vulnerable, authentic and aware of what they need to manage in a really human way through all of this.” Senensky talks weekly with a therapist. “If you’re shielding everyone else but yourself from the negativity, you’re going to blow up and collapse,” he says. Watch your structure.

CEOs can help ward off burnout by how they select, organize and utilize their staffs. “Ninety percent of CEOs are far too much into the details of the jobs of the people at the next level down; they’re always operating one level too low,” says Thackeray. “Their job is to stand back and pull themselves out of the mess.” Rajeev Kapur, CEO of 1105 Media, tries to make sure he’s “not the smartest person in the room” at the B2B-marketing firm. “If you are, teams will always defer to you and look to you to always solve problems.” This can fuel exhaustion and burnout—especially if it’s taking place across multiple parts of your business at the same time. Change your status.

A job change may help leaders avoid burnout. Scheef argues that company owners can more easily handle stresses than corporate chiefs. “You started a business where you have a mission, a vision and a set of values that you created, so there’s inherent fulfillment that comes from getting out of bed every day to achieve that vision, as opposed to working for someone else, and they dictate strategy,” he says. At Quility, Watkins has a co-CEO. “If you’re doing it all by yourself, you have to struggle. But in partnership, you can lift each other up.” Acknowlege a problem.

Perhaps the most important tip of all is this: Anyone who feels like they are close to hitting burnout must allow themselves to admit it, Russell says. “You can’t improve what you won’t acknowledge,” he says. “[Then] take the first step to regaining the necessary balance in your life and watch burnout dissipate.” CE

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LE AD ERS LAW BRIEF \ DANIEL FISHER

DEAD SUIT WALKING

A recent ruling opens the door to third-party litigation—and the resurrection of defunct corporate plaintiffs.

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

IN 2013, THE MONETARY AUTHORITY of Singapore said it had uncovered an interest-rate bid-rigging scandal involving some of the world’s largest banks. Three years later, a pair of Cayman Islands hedge funds, FrontPoint Asian Event Driven Fund, and Sonterra Capital Master Fund sued the banks in federal court in New York. The lawsuit referred to both funds in the present tense, but that was misleading: Both had been terminated almost five years before. The real plaintiff, or “party in interest” in legal terms, was an entity with the bland name of Fund Liquidation Holdings LLC. Fund Liquidation lifted the veil a bit in 2017, referring to the two plaintiffs in the past tense in an amended court filing. Finally, in 2018, Fund Liquidation identified itself as the real plaintiff, and the banks moved to dismiss, saying the case had been a legal nullity from the start. Under longstanding U.S. precedent, dead people can’t sue, and courts have generally held the same for dead companies. A trial judge agreed, dismissing the case in July 2019. The Second Circuit Court of Appeals in New York reversed that decision in March, however, saying it didn’t really matter that the plaintiffs had gone to the Great Beyond before they filed suit, as long as somebody had a stake in the case. That rubbed a number of pro-business organizations the wrong way, including the U.S. Chamber of Commerce, which has asked the U.S. Supreme Court to overturn the decision. In an amicus brief before the court, the Chamber says the decision opens the door to anonymous third-party funders filing lawsuits for profit or political gain. In 17th-century England, they might have called this barratry, a word believed to have come from the Old Norse term for “struggle” or “strife.” In England, it meant stirring up trouble by paying people to file lawsuits against your opponents, and it was a crime.

16 / CHIEFEXECUTIVE.NET / WINTER 2022

In 21st-century America, funding other people’s lawsuits has become a multibillion-dollar business that proponents say fills a vital need. By sizing up cases and putting real dollars behind them, litigation funders help companies maintain lawsuits—especially against big competitors— that they otherwise might have to abandon because of the cost. The funder takes on the risk of failure, and the plaintiff can redeploy those dollars in the business. The rapid growth of the litigation-finance business demonstrates how popular the formula has become. From an exotic investment concept a decade or two ago, third-party litigation has ballooned into more than $11 billion in assets by some estimates. Publicly traded Burford Capital, one of the leading providers of litigation finance, has a market value of $1.7 billion. Returns frequently exceed 50 percent a year. None of this impresses critics like the U.S. Chamber of Commerce. They point to the Fund Liquidation case as a scary harbinger of a world in which anonymous funders promote lawsuits that lack what many thought was the fundamental requirement for getting into court: an injured plaintiff. In its filing seeking review, the Chamber cites a recent Supreme Court decision that held that the U.S. Constitution limits federal-court jurisdiction to cases involving “a real controversy with real impact on real persons.” Without that check, the Chamber says, problems “will only metastasize.” Hedge funds won’t even bother to find real plaintiffs, pressure groups will gin up lawsuits to harass their opponents, and class-action lawyers will be free to pursue lawsuits without a single real “client” to maintain a check on their fees. All of which may be true, but in the meantime, the litigation-finance business continues to grow, with corporate litigants leading the way. Somebody thinks it’s a good idea. CE

CH I

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CEO100 mentor John Lundgren (former Chairman & CEO of Stanley Black & Decker) speaking with CEOs

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LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD

CEO VOICES: FACTS VS. FANTASY A YEAR AFTER THE WORST assault on the Capitol since 1812, the companies that pledged to use their political influence to defend democracy in its aftermath are under fire. ABC News, CBS and PBS have all trumpeted an Associated Press story charging that Fortune 500 CEOs’ commitment to PAC PLEDGE PROMISE-KEEPERS withholding funding from lawmakers who voted against certifying the 2020 election results were “empty promis22% es.” Yet, concern among big business NonCompliant remains very much alive. In fact, just this past December, when I gathered roughly 200 CEOs, U.S. 78% senators, governors and policy experts Compliant with Pledge to debate the matter, I didn’t hear a lack of concern. Furthermore, a closer look at the data being bandied about to support the allegation that a vast swath of companies are reneging on their post-assault pledges reveals exactly the opposite. “GOP Election Objectors Rake in Corporate Cash,” a recent high-profile piece in The Hill, is emblematic of how proliferating voting-rights advocates are creating confusion for CEOs looking for yardsticks for comparison and adding to the fingerpointing within their ranks. The article showcased the misguided conclusions of Accountable.US, a liberal watchdog group that charged Fortune 500 firms with “quietly resuming” their political giving to GOP election objectors. The reality? Even though the moratorium on corporate political donations was only temporary, a deeper analysis of the actual FEC data for Q1, Q2 and Q3 shows that consistent compliance has ranged between Jeffrey Sonnenfeld is 80 percent and 95 percent. The Q4 data is, senior associate dean, of course, not out yet. While a handful of leadership studies, companies, including Boeing, did renege, the Lester Crown professor in management practice remarkable consistency—rather than those at Yale School of exceptions—should be the headline. Management, president This most recent discussion showcases of the Yale Chief the perhaps intentional apples-and-orExecutive Leadership anges data confusion, likely due to underInstitute and author of lying suspicion of corporations on the The Hero’s Farewell. left. Skeptical media pieces pronouncing Follow him on Twitter @JeffSonnenfeld. their failure flowed immediately after the

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commitments were made in early January 2021, before any of the FEC data came out each quarter to prove them wrong. As Mark Twain advised, “the reports of my death are premature.” The money line and focal point in the article in The Hill seems to be “less than a year after Jan. 6th attacks, PACs associated with Fortune 500 companies and their trade groups have contributed $6.8 million to the 147 republicans who objected.” This is woefully misleading. At first blush, $6.8 million sounds impressive, but some Congressional members haul that much in on their own. Spread among 147 members, it’s a far less impressive sum—one that actually reflects diminished giving. In fact, $6.8 million is less than 1.5 percent of Congressional donor support and less than one-third of one percent of total donor support to both parties this year. Corporate gifts are down, overwhelmed in magnitude by individual donor support, which currently accounts for 82 percent of Democratic Congressional candidate funding and 78.7 percent of Republican funding. What’s more, many companies are finding themselves compelled to move beyond campaign contributions to weigh in on political and social issues directly. As Michael Dell recently stated, “If corporations cannot speak out on voting access and ballot security, what can they address?” At a recent National Investor Relations Institute forum, SVP JJ Davis explained that Dell considers four questions when deciding whether to engage in over 100 social issues that it tracks: 1) the impact on Dell’s brand and reputation (alignment with core values and past positions); 2) the external impact on key constituencies and the positions of peers; 3) the ramifications for public policy makers and 4) the ESG sentiment of employees. Companies must make their own calls on taking stances on national and local social issues. But whatever a firm decides regarding social issues, CEOs and boards need to answer key questions based on objective facts, not ideologically-based fantasy. CE

LE A DE RS COACHING YOURSELF \ KELLY GOLDSMITH & MARSHALL GOLDSMITH

HIGHER BARS Why leaders keep getting better—yet their reputations keep getting worse.

Kelly Goldsmith is a professor of marketing at Vanderbilt University’s Owen Graduate School of Management. Marshall Goldsmith has been ranked as the world’s #1 leadership thinker and coach. His 44 books include the New York Times bestsellers What Got You Here Won’t Get You There, Triggers and MOJO.

JIM, A NEWLY MINTED MANAGER at a top technology company, asked us a fascinating question: “Do leaders today act more like bullies than leaders in the past?” He went on to elaborate, “It seems like every week I read stories in the press about bad leaders who intimidate people and engage in disrespectful behavior. Do you think that leaders are worse today than ever before?” Jim was very surprised at our response. We believe that the overwhelming majority of executives today are much better leaders than at any other time in our history. The leaders we coach are far more inclusive, caring and respectful than their historical predecessors. How can leaders be more inclusive, caring and respectful in the face of an increasing sea of negative comments about bullies and bad leadership? Members of today’s workforce have become much more discerning and willing to publicly express their opinion than ever before. They are no longer afraid to tell the truth as they see it. Let’s go back in history. Almost all our ancestors lived in some form of a “class society.” The Code of Hammurabi in 1750 BC describes a totally different set of rules for the upper class and everyone else. Historically, this pattern continued for centuries. No one challenged the king. Anyone who challenged the leader was severely punished. Bullying was just part of the natural order. You did what the leader said, or you paid the price. A fascinating New Yorker article, “Why Facts Don’t Change Our Minds,” explains

in great detail why “fitting in” throughout history has almost always been more valued than “rationality.” If you look closely at our history, people who fit in and bowed to authority were accepted. People who “rocked the boat” or challenged the system were ostracized—even if they were being “rational.” The wonderful fable “The Emperor’s New Clothes” illustrates how people lived in fear of authority and would pretend even obvious lies were true rather than publicly disagree with leaders. As in most great fables, behind a simple and funny fantasy lies a deep and painful truth. We live in a new world. Today’s top knowledge workers are no longer intimidated by their leaders. These professionals know they can get another job. No one in the past enjoyed being bullied by their leaders. They had to put up with it because they had no choice. With the advent of Glassdoor and other organizations that publicize the work of leaders, two new necessities have emerged: • Today, great professionals have a choice. They do not have to tolerate bad leaders. • Today, top organizations have no choice. They cannot tolerate bad leaders! Leaders today are being publicly chastised for behavior that was common—even 20 years ago. We believe that in the future, executives and managers at all levels will continue to become more considerate and more effective leaders of people. We also believe that as leaders get better, the bar is being raised, and the standards of evaluation for great leadership will become higher and higher. Leaders at all levels will need to realize that the behavior that was tolerated, or even celebrated, in the past will not be encouraged or even allowed in the future. CE

CHIEFEXECUTIVE.NET / WINTER 2022

Melmark Welcomes You to be Part of Our Mission Melmark is a multi-state human service provider with premier special education schools, professional development, training, and research centers. Programs and services include a children’s day school, after-school and residential programs, adult day and adult residential programs serving hundreds of individuals. Other services include public school consultation and family outreach services, a formal professional development program including onsite graduate education, an Expert Speakers Series and the creation and design of the EnvisionSMART™ Institute. The EnvisionSMART™ Institute includes a series of professional practitioner manuals and proprietary software programs designed to replicate the Melmark Model of Program Development for public schools and other service providers.

Philanthropic support from individuals, foundations and business communities sustains and enhances Melmark’s ability to care for the people we serve. Charitable donations allow us to develop and invest in new technologies, innovative programs and evidence-based services. For more information or to make a tax-exempt donation in support of Melmark’s mission, please visit www.melmark.org.

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Congratulations, Rita M. Gardner, Melmark President and CEO Rita has led Melmark into its fourth consecutive year as one of the top 100 women-led businesses in Massachusetts.

Melmark Senior Leadership from all three divisions during a three-day Strategic Planning Session in Pennsylvania.

Figuring out how to finance the significant cost of the COVID-19 pandemic has been a “challenge. Because of our strategic plan of 2017, and thanks to the generosity of our donor community, Melmark is more strongly positioned than many other not-for-profit organizations across the country. This past year, Melmark received a historic endowment gift of $21.5 million from the Anne and Brutus Kenan Fund, which provides additional security for Melmark’s future. We will continue to break barriers, break ground and improve our services and facilities for those

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we serve. We will always be mission-focused for Every Individual, Every Day.

Rita M. Gardner, M.P.H., LABA, BCBA Melmark President and CEO

Melmark remains committed to equality in the workplace and beyond: ■ 72% of senior leadership roles held by women. ■ 73% of all management positions led by women. ■ 88.5% of staff across all state divisions reflect diversity in race and gender. ■ 100% commitment to meeting the needs of children and adults with autism spectrum disorder, intellectual and developmental disabilities and their families in New England, Pennsylvania and the Carolinas.

www.melmark.org

C OVE R STORY

‘WE KEEP CLIMBING’ Delta Air Lines CEO Ed Bastian has seen it all, leading his team from the brink of bankruptcy to the top of their industry. But nothing fully prepared him for the disaster of the pandemic. “I have learned more in the last 18 months,” he says, “probably than the last 18 years.” His takeaways. INTERVIEW BY DON YAEGER

ROM LABOR SHORTAGES TO SUPPLY CHAIN SNARLS, WORKER SAFETY ISSUES

to inflation, this is one of the most volatile, challenging times facing CEOs that anyone can remember. For Ed Bastian, CEO of Delta Air Lines, the degree of difficulty is all that—and more. When Covid struck, Delta lost 95 percent of its revenues in 30 days, tossing the company—and industry—into the wilderness. It somehow survived. Government aid helped, for sure, as does the pent-up demand for travel. But while other traditionally high-performing airlines stalled out, with labor brawls and cascading scheduling failures, Delta avoided the worst of it under Bastian—knock wood—and in September announced adjusted Q3 profits of $1.2 billion (without any help from Uncle Sam), though the company may take a small loss on the full year. As for leading his people, here’s a telling metric: Delta quietly got 97 percent of its employees vaccinated—without imposing a mandate.

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PHOTO: ERIK TANNER

CEO MAGAZINE /WINTER 2022 / 23

Ask Bastian, 64, how he’s done it, and how he’s leading his company back from the edge—and he’ll tell you that being the oldest of nine children, he learned young how to be a crisis manager. But no childhood bathroom squabble could prepare him for leading Delta Air Lines through all these years of challenge. As he recently told Corporate Competitor podcast host Don Yaeger, his decades-long love affair with Atlanta’s largest employer was built on the belief that organizations, even one as big and as far-flung as Delta, can only thrive when they are driven by their purpose over their profits. “The story of Delta Air Lines is the story of redemption, and redemption is a powerful story,” Bastian says. As CEOs everywhere get ready for 2022, we spoke to Bastian about the past year, about rallying people during a time of peril, keeping them going when it’s tough to keep going and discovering how learning to run a marathon in his 50s to help a 14-year-old girl named Grace changed his life—and his leadership— forever. Here’s the conversation, edited for length and clarity:

“The story of Delta Air Lines is the story of redemption, and redemption is a powerful story.”

I’m fascinated by CEOs who are able to manage themselves and manage major organizations through challenging periods of time and what gave them the foundation that makes them special. Growing up in Poughkeepsie, your parents ran a dental practice from their home while raising nine children. What lessons about leadership and management did you learn in that household?

It probably prepared me for the airline world well. There was always some crisis going on, who wasn’t going to get a shower or go to the bathroom. We had one and a half baths for the 12 of us, including my grandmother, who lived with us, in the house. I don’t want it to sound like we were underprivileged in any way. It was a wonderful house; it was a great family. We all learned to share a lot. We learned

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the importance of teamwork and how to get along, how to influence when you don’t necessarily have authority, which is a key life lesson. We all learned—I probably more than the rest of them—the importance of being a great role model. My parents drilled it into me time and time again. You’ve got eight little ones looking at you, and you’ve got to make sure that you’re always setting the right tone and temperament. That inadvertently kind of thrust me into a position of feeling somehow responsible for my own grades, behaviors and ambitions. Did you see in your parents the kind of thoughtful leaders, thoughtful givers that you wanted, ultimately, to be like?

My parents were wonderful role models for me—very, very strong Christian home. My dad, he ran a dental practice in the house. So on top of 12 people, there was also a dental practice of people coming and going at all times, day and night. My sister’s bedroom was right above the office, and every now and then somebody would jump on a bed or decide to wrestle on the floor or whatever, and there’d be a big boom, plaster would fall from the ceiling on his patients, and he wasn’t too happy. I lost my dad very early; he died when he was 52. My mom had much more influence, as a result of that. Unfortunately, we lost her last year. I was always amazed by my mom taking care of all of us. She was a dental hygienist, so she assisted him in the office. She was involved in the community, whether it was in the church, the nursing home down the street. She’d bring food every single week to people who didn’t have [enough] and was constantly baking and doing things for others. Her constant engagement in the community giving back was really remarkable. You began running marathons in your 50s and promised your team of employees in New York that if your operation there became profitable, you would run the New York City Marathon. Tell me about the dare. How did you find your-

self staring at the starting line of the New York City Marathon?

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My best sport in high school was track. I wasn’t a long-distance runner. I didn’t like long distances. I was a sprinter, particularly high hurdles because I was sort of tall; and I was fast. The 120-yard high hurdle was my sport, but as long as it was less than a quarter of a mile, I was all in for it. Finishing my senior year, I was third in the county in the finals, went to the county championships. And I actually went to the state’s. The guy that beat me from the county was the state champion. In fact, he wound up the state record holder. It was pretty cool. Running was something I was good at, but as I got older, I didn’t really have the time to get involved as much in team sports and baseball and football. They dropped by the side, but I could always run to stay in shape. And even when I was young, I was awed by people that would run marathons. Sure enough, in my late 50s, I still had that itch. I said, “Well, if I don’t do it now, I’m definitely not going to do it.” We had our team in New York, and we were building out our facility at JFK. It was a big, ambitious undertaking for us. Biggest investment we’d ever made. Several billion dollars in building that new international terminal. The operation was still not at a point

where it was sustainable. We were building it; we were making progress. And I told our people, “Before we get this facility built and we’re profitable, I will run the marathon.” It took several years to build. I was thinking, I have time, I have time, I have time. Eventually, it was built, and the team turned it around, and I had to run. So I said okay, and I started training. Early on in the training, I realized that I would find a reason not to do it if left to my own devices. You can get yourself injured; you can find all kinds of reasons why your body at 58 breaks down and you can’t run a marathon. I talked to a woman who runs a charity here in Atlanta for childhood cancer, the Rally Foundation—Dean Crowe, who’s a good friend. I’d spent a lot of time with that charity over the years, and I said that I would raise money for the run. I wound up raising about half a million dollars. That half a million dollars more than anything kept me motivated, focused and on track, and I did it. I ran it November of 2014. It was a cold day, it was a windy day; it was nasty. I was at the starting line, it looked like I was getting ready to go on a ski run. It was just cold, with 40-mile-an-hour winds—awful, cloudy, bitter cold. I did it in about five hours. So I got it out of my system, but I stayed involved with the charity. A few years later,

In 2020, Delta became the first airline to exhibit at the Consumer Electronics Show, where Bastian announced technology innovations that will transform the future of travel.

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there was a little girl who ultimately wound up losing her life. Her name was Grace. She had cancer, bone cancer, and she had just lost her leg. She was the same age as my youngest daughter. At that time she was probably 14, I think. She was the most positive human being. She knew she had little time to live. She had a diagnosis that there was no cure for. They had tried all the chemo and all the treatments. Osteogenic sarcoma—it’s just lethal. Swimming was her thing. Despite the fact that she lost her leg to cancer, she was winning races. She was like a fish in the water. Annually, in November of each year, there’s a charity function that auctions things off to raise money. And, if they raise a million dollars at this dinner, which is their big fundraising, that’s a good event. She spoke at the event. And she, she had grace. She held up her iPhone that she had just gotten as a gift from her parents. There are about 1,000 people in this ballroom. A 14-year-old girl with just the most confidence. She said, “You realize that there’s been more investment and more generations of this phone just in the last few years than there’s been in the research of childhood cancer in the last 40 years?” She was absolutely right. Unfortunately, our government doesn’t fund research for childhood cancers because adults have voices; kids don’t. Adults have influence, and the pharmaceutical companies want to bet on adults who have pocketbooks, and kids don’t have pocketbooks. That was so, so impactful on me. I said to Grace, “I’d like you to come visit me in my office and have lunch” because she was interested in Delta and about me, and she knew I’d run a marathon. I told her I would do it one more time, for her. She wound up dying a couple months later, before I ran the race. But I’d told her I’d raise a million dollars for this charity, for a cure for these kids. Wound up raising $2 million. Top

“You shouldn’t feel that your learning stops on the day you graduate. It really just starts.”

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five moment. Not necessarily a historic athletic achievement, but it was incredible. I’ve got lots of friends, and I called on all of them, I told them what their contribution to my $2 million race was going to be, and people showed up for me. It was powerful. I became very passionate about it. She lost her life a couple months later. There were 2,000 people in the church, standing room only for her. She went to a small school, but she touched so many people’s lives, she had confidence in her future as to where she was going, and her faith was powerful. They talk in the Bible about the faith of a child. She was a living embodiment of that for me. In a commencement speech you gave at Georgia Tech, you talked about the importance of lifelong learning. What are you working to learn right now?

When I give that speech, I also tell kids that when you graduate, there’s a sense that you’ve accomplished something, which you have. But you really haven’t. You’re just starting your studies, right? And you shouldn’t feel that your learning stops on the day you graduate. It really just starts. I use myself as an example. The day I graduated from St. Bonaventure University, I had never set foot on an airplane, and I didn’t step foot on an airplane until I was 25 years old. As a big family, we didn’t have a lot of means—the one trip a year was a station-wagon trip to Florida and back. So I let them know that if I had considered my learning at that point to guide my path, I certainly wouldn’t be in the position I’m in. I don’t fly planes. I’m not a pilot. I’m not a technologist, I can’t check people into reservations, I can’t fix a plane, I’m not a mechanic. So I’ve had to learn about what’s important to all those roles and those jobs, and how they all come together to deliver a great experience for customers. That’s learning in itself, just learning so many different skills and expertise from so many different fields. The pandemic has put it on steroids. Covid was the ultimate—no playbook existed, and we were at our highest high. When Covid hit, Delta was the most profitable,

best-performing airline, not just in the country but in the world, ever. No airline had ever accomplished what we’d accomplished. Within 30 days, we were down to less than 5 percent of what we had, 5 percent of our revenues in 30 days with no understanding of what was going to happen. It was the most dramatic fall in modern history, in business anyway. Also, while we were seen as the leaders in the industry, as the champions in our own sort of way, Covid leveled all of that. It took all of our advantages away, and we had to start over again. What I’ve been most proud of about the team—and again, the learnings that come through it—is that we’ve emerged, we’re not through it yet, but we’re emerging on top with an even stronger brand, a stronger company, a stronger passion and purpose for where we’re going. That comes from the fact that we’ve had to learn. We had to listen each other, we had to rely on each other, we had to follow our instincts, and we had to keep very focused. How do you get the team to look and say, we lost our advantages, we’re essentially starting from scratch? What do you do to help them look forward in that moment when you’re at 5 percent—the darkest day and have no idea what’s ahead?

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You’re honest, and you let them know that you’ve got a lot more questions than answers, and you don’t have all the answers. That’s really hard for leaders to say. Leaders are looked to to provide direction and guidance, and there’s a vulnerability and authenticity to letting people know that I’m just not sure where this is going, but having the confidence to know we’re going to figure it out. I’m a big fan of [author] Jim Collins, who’s a friend. I have worked with him in the past. He talks about Admiral [James] Stockdale surviving the Hanoi prison, the longest-serving officer in the prison. In Hanoi, it was just a tortured awful eight or nine years, however long Admiral Stockdale was in there. How do you survive that? So many people died; they

couldn’t take it. Stockdale talked about, “I had confidence I was going to be rescued. I just didn’t know when or how, and I was going to continue to be open to figuring it out and seeing it through. Those who thought that we’d be out of this in six months, or we’d be out by Christmas, those are the people who died, right? They die of heartbreak.” It’s the Stockdale Paradox. That steely-minded resolve is what’s gotten us

through the pandemic here at Delta. Myself and the leadership team, knowing that we’re going to keep leaning on each other. I had set out the principles, right in the second week of March, that we were going to focus on protecting each other. We didn’t know how the business was going to come back, but we were going to do our very best to protect our people, our customers, their safety. We were going to protect our cash, we were going to be very mindful watching our cash, but also protect our future. We weren’t going to let this undermine our ability to have a future. And those were the guiding principles all throughout the pandemic.

Bastian spends at least 50 percent of his time on the road, meeting with frontline employees.

Where did the idea that purpose was going to be so central in your leadership style come from?

We’ve come through hard times here at Delta. We filed for bankruptcy 15 years ago. There was a takeover attempt, US Airways tried to take us over, and we prevailed. We’ve gone from crisis to crisis, the global financial crisis, merging with Northwest, 9/11—there’s just been a series of crises the last couple of decades.

CEO MAGAZINE /WINTER 2022 / 27

There’s a lot of opportunity to throw in the towel, to say, “This is just too hard, we can’t do this.” It’s the people of the company that we feel an obligation to ensure that they will be positioned to succeed. My job is to serve them—my job is to give them the tools, the training, the opportunity to win in the marketplace. I’m confident that if I do my job of putting them in a position to win, they’re going to do an amazing job serving customers. I became CEO six years ago, and we were already getting close to the top of the mountain—“keep climbing” is our other tagline. I called Jim Collins and said, “Jim, we keep climbing. Well, what happens when you get to the top of the mountain? You have to go down the mountain.” Or the alternative is, what’s the next mountain we’re going to go climb? Let’s go find another mountain. That’s how we came up with the anthem, as I call it, “No one better connects the world.” Because that crystallizes why we do what we do. And as I speak to so many of our people, it’s been so clear through the pandemic, clearer than ever, the purpose we have, the mission that we’re called to is so meaningful. The world literally cannot connect on video technology long term. The spirit needs to be together; we need to get people together for understanding and for joy and friendship and collaboration and creativity and fellowship and encouragement. And that’s what our people get to do. Everybody’s got their job, everybody has a role, everybody’s got an important role they play in the world, but we’re privileged to have that role. It puts me back 15 months ago. People were losing people, and we needed to keep pulling through. We really felt like we were on the frontline of the crisis. It affirmed the purpose of what we do more than ever, in the hardest of times.

“The world literally cannot connect on video technology long term. The spirit needs to be together.”

How do you make sure you add people to your team who bring what you’re

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talking about—that discretionary effort— to work every day?

We’re a business that serves people. We fly planes, we fix planes, we take people on exotic trips. Fundamentally, we serve people, and we look for their heart of service and how they’ve evidenced it in their past—that they’re involved in their community in their churches, they’ve been involved in fellowship and leading teams forward. We’re not a team of individual contributors. We’re a team that has to not just evidence it but enjoy and have passion about serving people. We can teach the other stuff. How the technology works, how to serve people on airplanes or how to fix planes, we’ve got a lot of people who know all that stuff. Obviously, you need base skills to come into some of these jobs, but [we need to] discern more about the people we hire, including pilots. The people who are called to serve are people that are drawn to Delta. That’s our goal. Our people, many of them spend 25-, 35-, 45-, 55-year careers with us. We have very little turnover, 2 percent on average. People love to work at this company. So the hiring decisions are really important. You can’t train for attitude, but you can train for aptitude and skill. What kind of advice can you offer to other leaders about building teams from the individuals we may have on our rosters?

Why do you exist? Why does your company, why does your team, why was it created? What was the role to play, what’s your mission, what’s your goal, your sense of purpose? By having a shared purpose, you wind up needing to think bigger than yourself. Anyone who can fulfill their purpose on their own—they’re not very ambitious, and they’re not going to go very far. But everyone who can understand what it takes to generate something that’s of greater value than what they can do themselves and the roles each play—it’s that shared purpose and, for us, it’s that shared great customer experience.

I know you spend 50 percent of your time out of the office. How do you make sure frontline teammates are aligned with you on this great purpose?

Well, one thing is I am very visible, our leadership team is very visible, out on the frontlines of the business. The beautiful thing about our service and our products, we get to experience it ourselves. We’re all customers; we all have our point of view. We can all see what it takes to deliver. A lot of it is about communicating and having an individualized relationship with our teams. Not just myself but our leaders, and one of the accomplishments and achievements I’m most proud of—and it’s taken a lot of work, and a lot of people have helped me with this—is that just about everybody in the company knows me. There are not a lot of companies where everybody feels like they know the CEO on a first-name basis. I’ve met many of our people—thousands, tens of thousands of them—over the course of my 20-plus years here. There’s not a flight I get on where I’m in the cockpit or the galley and someone doesn’t say something like, “I met you eight years ago, you were taking your daughter to such and such.” And sometimes I can’t remember. So one of the little tricks I learned is you never say, “Good to meet you.” It’s always, “Good to see you.” We do a lot of gatherings, in big settings, thousands of people together, small settings, galleys. Communicate, communicate, communicate, and keep people with you because we’re on a journey together, and they all feel like they understand their part and their role. That’s visible leadership. The other thing we did that cements it is that when we went through bankruptcy, we made a decision. I was the architect of this, which I’m proud of. We told our people that when we succeed, and we were going to succeed, we would share the first fruits of those efforts with them. And we put in a plan that pays our employees 15 percent of our profits. Management doesn’t get any of that—it just all goes to our frontline employees. When I first started talking about it,

we were losing money because we were in bankruptcy, and people didn’t think much of it. They kind of laughed a little bit: “Yeah, that’ll be a nice day.” But as it grew and grew and grew, we got up to February of 2020, and we paid our employees $1.6 billion. Paid it on Valentine’s Day. Every year, we’ve paid on Valentine’s Day. It represented about 18 percent of their pay. They never know how much it will be, and money isn’t the driver, but it is the thank you. It causes them to realize, now we have to do this as a team. We have to kind of keep pushing this because I want that check next year. It’s life-changing money. I’d ask people, “What did you do with your profit sharing money?” Well, a lot of people saved it, which is good, but a lot of people say: “I finished that addition on my house,” or “I was able to pay off that student debt,” or “I was able to have the wedding for my girl that I wanted to have.” Connecting that to the company, that sense of purpose as to why we do what we do, that’s the magic. That’s the chemistry that creates a very special environment to work. We fought a takeover battle—we almost lost our company to US Airways back in 2006. When you ask me what drives my purpose and passion, it is because we’ve had a second chance. Redemption is powerful. That redemption story is a big part of my internal drive. Many people have asked me how I’ve survived this last couple years. I tell people it’s not the end of the challenges, the pressure and decisions, the stress. It’s really, to me, how you think about it. I think about it as the honor of a lifetime to lead a company that I love, a company that’s so important. It’s the largest company in the state of Georgia, the largest employer in the city of Atlanta—a 95-year-old company with a great history that has never needed its leadership more than it needs it right now. For whatever reason, I’m sitting in the chair. I consider it a blessing, and an honor and a privilege, not a burden. CE

“One of the things I’m most proud of... is that just about everybody in the company knows me.”

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TOUGHER FASTER SMARTER

Challenges and threats may be inescapable, says Gen. Stanley McChrystal, but the ability to move through them—and thrive—is very much in your hands. The trick is building a strong Risk Immune System. Here’s how. BY DAN BIGMAN

It started when a tourist flew home to Chicago from China. He was 52 and in decent health, but deep in his body a virus was quietly killing his respiratory system. Within days of his arrival in the U.S., this unknown illness was spreading. Within weeks, hospitals around the country were being overrun with patients experiencing chills, fevers, coughs—and dying. The worst was yet to come. The nation’s medical supply chain failed. Lacking key protective gear, doctors and nurses contracted the still-unknown virus. Badly structured federal response systems and poor communication from Washington squandered any opportunity to track and contain the pandemic before it overwhelmed the country. Just a few months later, this new virus had infected more than 100 million Americans and killed nearly 600,000 of them—far more than all the U.S. soldiers, sailors, Marines and airmen who died in combat during World War II. But if you think you recall these events, you’re wrong. This isn’t Covid-19. It’s actually the outcome of a Department of Health and Human Services exercise called Crimson Contagion. Played out in 2019 to test the ability of the United States to react to the early stages of a serious pandemic, “its results were as

LIVE EVENT FOR CEOs RISK: A MODERN LEADER’S GUIDE Gen. Stanley McChrystal will host an interactive online workshop based on his book Risk: A User’s Guide on February 3, 2022. Tying together his life’s work exploring the essentials of leadership and risk management across centuries, he’ll help you build a stronger, more resilient organization—and prepare you to run it more effectively. Join us: ChiefExecutive.net/ GeneralMccChrystal

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alarming as they were conclusive,” writes Gen. Stanley McChrystal in the opening to his fascinating and useful new book Risk: A User’s Guide. “Our nation was woefully underprepared.” For anyone who has lived through the past two horrible Covid years, the idea that the country had studied the potential for a viral pandemic and not heeded the warnings of what might happen is frustrating, and disappointing. For McChrystal, the retired four-star General who, most famously, ran all operations during the “surge” in Afghanistan after spending most of his professional career enmeshed in some of the riskiest situations imaginable, the outcome may be both of those—but it shouldn’t be at all surprising. It simply illustrates what happens when an organization—in this case, a nation—fails to strengthen the key systems, processes and structures required to remain resilient in the face of an increasingly unsettled world—and lacks the leadership required to maintain those systems. In the face of threats like Covid, or a million other potential risks to our businesses or our country, “we can blame outside threats all we want, but there is much we can do to prepare for them—often far more than we care to admit,” says McChrystal. That’s the key idea in his new book. Rather than try to create foolproof plans for every imaginable scenario, McChrystal lays out the case for building a hearty “Risk Immune System” comprised of 10 operational elements that, when maintained and improved, will make your organization more resilient than an underground bunker filled with dusty contingency binders. There’s also a good chance it will make your business run faster, smoother and with far-greater esprit de corps than ever before. “We worry about the Black Swans and all these various things, but we’re not very good at actually predicting them with any accuracy,” says McChrystal.

“We can blame outside threats all we want, but there is much we can do to prepare for them— often far more than we care to admit.”

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“What we do know, however, is they are going to come…It’s really about getting your house in order.” The Risk Immune System

The key metaphor of the Risk Immune System came to McChrystal while studying HIV/AIDS with Dr. Kristina Talbert-Slagle, a Yale immunologist, who saw parallels between the human immune system and counterinsurgency operations in the military. While most of us might recall HIV as a decades-long scourge as that killed tens of thousands, the reality is that people don’t die of HIV/AIDS. They die of other illnesses that attack once HIV has destroyed their ability to fight infection. Organizations have the same problem, McChrystal realized. Challenges—whether societal in scope or simply the unexpected loss of your single best customer—are as inevitable and mundane as germs in your sink. What makes them dangerous—deadly even—is your inability to react effectively. Why? Problems with what he calls your Risk Control Factors, the 10 areas that comprise the Risk Immune System: Communication, Narrative, Structure, Technology, Diversity, Bias, Action, Timing, Adaptability and, at the heart of it all, Leadership. “About 80 percent of what you do in a crisis is the same, whether it’s a natural disaster or a cyber attack or a financial crisis,” says McChrystal. “You have to communicate clearly. You have to have a solid narrative and align your organization on it. You have to overcome inertia and act. You need to act at the right time. You need to avoid blind spots with diversity and overcome your biases. You have to tie all that together with leadership. So, about 80 percent of what you do are basics.” So, what are the elements, and how do they work together? We asked McChrystal to help us understand the essentials of a healthy—or compromised—Risk Immune System. Communication

Central to everything is the ability to communicate—which requires four things: working physical infrastructure, a willing-

TAKING CONTROL Rather than try to build contingency plans for every potential eventuality, Gen. Stanley McChrystal prescribes building a strong Risk Immune System, where each of these Risk Control Factors are strengthened and maintained.

STRUCTURE How we design our organizations and processes

NARRATIVE How we tell others about who we are and what we do BIAS How the assumptions we have about the world influence us

COMMUNICATION How we exchange information with others LEADERSHIP. How we direct and inspire the overall Risk Immune System

DIVERSITY How we leverage a range of perspectives and abilities

TECHNOLOGY How we apply machinery, equipment, resources and know-how

ADAPTABILITY How we respond to changing risks and environments

ACTION How we overcome inertia or resistance to drive our response TIMING How when we act affects the effectiveness of our response

ness to pass along information, a high-quality message that is accurate and not misleading, and a respondent who is willing or able to listen and digest the message. If any one of these areas is deficient in your organization, due to anything from broken technology to office politics, then you’re going to have a tough time in the face of any unexpected challenge. Because, McChrystal argues, whether you’re in combat or business, everything is dependent on the ability to communicate effectively. “There’s no problem in communication that gets fixed and stays fixed,” he says. “So, the first thing you have to do is understand that there are all these bad communication habits and pitfalls. You’ve got to establish a communication process, you’ve got to put test communications through it, you have to exercise it, you’ve got to determine that it’s working.” While running the U.S. Army’s elite Ranger Regiment as a colonel, for example, McChrystal would test how well communication was functioning by putting out policies and then asking privates in the reg-

iment to explain them. “They’d go, ‘Sir, why do we have to wear our underwear on our heads?’ And I’d go, ‘What are you talking about?’ And they’d go, ‘We were told.’ You find out that by the time it got to them that it was just absurdly incorrect, and yet, they go, ‘Okay. The boss said X.’ So you have to constantly check that.” He suggests every leader find ways to analyze how well their organization is faring when it comes to the four key points of communication failure. “You have to have feedback loops that do that. You have to force people to understand that they are responsible for the flow of information, that if you have information, you are responsible to make sure other people get it.” Narrative

An often-overlooked part of resiliency is the story your organization tells about itself. “The narrative is extraordinarily powerful because it drives what we try to do, what we try to be, how we self-identify,” says McChrystal. “It’s got to do with inspiration and cohesion. If we have a narrative that

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we believe we are a band of brothers doing something honorable and bravely, we just perform differently.” A great example, he says, is the Marine Corps motto, Semper Fidelis—always faithful—which gives every Marine a shorthand for what’s expected in that culture. Google had an equally potent motto—Don’t Be Evil—at the core of its culture for years, but, says McChrystal, they ran into trouble when many in the organization felt the company’s dealings with the Pentagon betrayed this ideal. “It was perceived to be at odds with Google’s stated values, and, therefore, people became cynical,” says McChrystal. “They said, ‘You said don’t be evil, but you don’t really believe that.’ How many times do we see a gap between our narrative and then what we actually do?” McChrystal counsels honing the story you tell about yourselves to yourselves—and keeping an eye out for signs it is failing, such as cynicism, the “say-do gap” that hurt Google, muddled priorities and tensions that can undermine confidence. While the right narrative can create a potent ethos to tackle challenges, “when our narrative is misaligned to our purpose, values or strategy,” McChrystal writes, “We invite risk into our organization.”

“How many times do we see a gap between our narrative and what we actually do?”

Structure

“Structure gives us predictability,” says McChrystal. “It gives us a sense of stability. If you’ve got structure in an organization, when something is happening in a crisis, you know where to go because the structure is clear…so that you can focus on the emerging problem at hand.” That means everyone has clarity about the key elements that help us understand our place and role in the organization: What’s my job? Where do I go? Who’s my boss? How is success measured? What are the procedures we follow? “One of the principles of counterterrorism is always go after key individuals in the enemy’s network and take them out to try

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to disrupt their structure,” says McChrystal. “We’re vulnerable the same way.” Of course, the wrong structure can slow decision-making, create rigidity and thwart cooperation. And if it changes too quickly—watch out for restructuring for restructuring’s sake—it can be “very destabilizing,” says McChrystal. Signs that your structure isn’t working: Unclear roles and responsibilities, duplicated efforts, slow communication and very long chains of approval, i.e., “your boss’s boss’s boss” must sign off on things, as the book puts it. Ask yourself this key question all the time: Does our structure make sense for what we’re trying to do and for the environment in which we’re operating? Technology

Like many of the other Risk Control Factors, technology is a double-edged sword. McChrystal is a self-admitted early adopter, buying his own $4,800 Radio Shack computer back in 1982 to help him better organize and run a platoon. But he’s come to realize that every upside associated with technology also creates a potential risk. “For every advantage or strength it provides, it provides a corresponding weakness,” he says. “If you have something that provides a perfect service to do this function, now you’ve got a weakness, because you probably no longer maintain the ability to do it without that technology. If that technology breaks or it is attacked, then suddenly, you’ve got vulnerability— that function is at risk.” He’s not talking just about cybercrime. As a director at JetBlue, McChrystal learned how computer-driven scheduling could go haywire, with system-wide failures cascading through the company after an unexpected snowstorm pushed crews and aircraft out of position. More recently, the failure of many manufacturers’ supply chains over the past year came as a result of their deep reliance on just-in-time delivery. “We are the most connected society in history, and, therefore, we are now the most vulnerable,” says McChrystal. Ask yourself: Do you fully understand

where and how your organization incorporates technology? To what extent do you rely on automated processes? Where is your technology vulnerable to malfunction, interruption or outside manipulation? And, increasingly, how do humans interact with all this—where have you substituted algorithms for human judgment? “You have to do an assessment of every part of your organization where functions occur,” he says. “You’ve got to figure out what’s our weakness in that? Where can that go badly?” Doing so will not only help you understand your weaknesses and thus potentially mitigate risk, but it will also help you get a much deeper understanding of how your company actually functions— and how it might be improved.

that’s going to make it okay for other people to do that,’” recalls McChrystal. “And he was very intentional about that.” Bias

Diversity also helps us see the filters through which we, and our organizations, see the world—many of which, psychologists will tell you, may simply be inescapable facets of human behavior. Bias is a hall of mirrors where we often see what we

Diversity

EVERETT COLLECTION / COURTESY EVERETT COLLECTION - STOCK.ADOBE.COM

In Risk, McChrystal makes a powerful—and pragmatic—case for building diversity into all levels of your organization. He absolutely subscribes to the idea that bringing in a more robust mix of race and gender is the morally right thing to do, but there’s a very practical reason for doing so: Mitigating the deadly risk of groupthink. “Diversity is different experiences and perspectives and getting people who actually see the problem in a different way so that you cover the waterfront as effectively as you can,” says McChrystal, “which means that first, you’ve got to assemble those different perspectives, and then, you’ve got to give voice to them. You can’t just assemble them all in the room and if you’ve got too-big personalities, you do all the talk, and then the other people that are in the room don’t feel empowered to say anything. You’re not going to get diversity out of it. The key is you’re trying to eliminate blind spots, you’re trying to make sure that you don’t get surprised where you don’t need to be.” Building the kind of culture where lots of people feel accepted and empowered to speak up can be tricky. McChrystal learned a tip years ago from his boss at the Army’s storied 82nd Airborne Division. He told McChrystal to disagree with him publicly— even if he didn’t actually disagree with him. “He goes, ‘I want you to do that because

want to see, and, as McChrystal says, “buy what we want to buy.” “In Afghanistan, when I commanded, I requested additional forces from President Obama, got them, and we went forward,” remembers McChrystal. “But part of that was based upon was an assessment that we could do certain things. One of those was improve the performance of the Government of Afghanistan. Now, we could improve security. We knew we could, and we did. We could do some economic things. But improving the performance, decreasing the corruption of the Government of Afghanistan was more of a Hail Mary. “I thought we could do it. When I look back now I say, ‘If I had been harder on myself, if people had been harder doubting that, it certainly was in question.’ It’s one of those things where I would have been hard put to convince people that it was 85 percent probability of going through it.” His takeaway from the experience: It’s unlikely you’ll be able to eliminate your— or your company’s—biases. But you can identify them before you act. Activities

McChrystal learned tough lessons about the danger of blind spots running operations in Afghanistan.

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such as doing an “assumptions check” and “Red Teaming” can help. But building more diversity—and inviting a culture where speaking up is prized—is essential. Action

You’d think this would be an easy one for most CEOs—after all, who doesn’t see themselves as a can-do, move-the-needle leader? McChrystal’s experience in both the army and private industry has shown the opposite to be true. “Every CEO says they’re an action person, and it’s absolutely foolishness,” he says. “The average one does not want to act at all, because there’s personal risk in acting. If an organizational leader takes the organization in an uncharted direction and it goes badly, they’re screwed.” This feeds into every organization’s natural inclination toward maintaining the status quo. “There are always constituencies for the inertia,” he says, which makes us vulnerable to all kinds of risks. “It makes us vulnerable for rationalizing that we are doing something, when we, in fact, are not.” Symptoms of inaction include slow reaction time to trends, missed chances, contradictory efforts among teams, falling behind competitors and analysis paralysis. Watch out for all of these, says McChrystal—but especially your own bias for inaction.

“Every CEO says they’re an action person, and it’s absolute foolishness.”

Timing

You can do everything right but do it at the wrong time—and fail. Or you can do a lot of things wrong, but at exactly the right time—and win. That’s why, for McChrystal, it’s essential to build in systems that help you make decisions and move at a time scale that increases—not decreases— chances for success. Jeff Bezos is a master at this, says McChrystal. As CEO of Amazon, he would spend tons of time doing due diligence and deliberating on decisions that would decide the future of the company. But other kinds of decisions? Not so much. He’d push people deep within the organization to make those decisions quickly, with very limited information—and zero input from the top.

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He was more afraid of standing still than getting minor things wrong. “Bureaucratically, it’s easier for leaders to wait until the tsunami has hit because then you get this groundswell, ‘Hey, we gotta go do something,’” says McChrystal. “Well, of course, we do. But how much cheaper would it have been if we’d done it before? And that’s what leadership is about.” Adaptability

Simply put, writes McChrystal, adaptability determines “who survives and who doesn’t.” It leans on all the other Risk Control Factors and has similar flaws. “The problem with leaders here is that it is safer not to adapt, because you’re doing something you’re already doing and theoretically people have already approved that, or people before you have done this 1,000 times before, and so nobody’s going to get fired for doing what their boss did when they were in their job.” Clues that your organization may be exacerbating risks by being inflexible include lagging behind competitors, being “frozen” by fears of failing, doubling down on approaches that have worked in the past even when circumstances change, an inability to innovate and a sense of surprise at what rivals bring to market. Pay particular attention to any part of your systems that may restrict your ability to adapt to change, starting with an unceasing preoccupation with efficiency. “Maximum efficiency is usually very brittle,” McChrystal says. Leadership: the Essential Ingredient

In the early days of 2020, Boston Mayor Marty Walsh saw Covid arrive in America and, like most of us, was not too concerned. When an infected student arrived in Boston from Wuhan, China, he was quickly isolated. Walsh, as McChrystal, who helped the mayor’s response team and tells the story in the book, was hopeful Covid might be contained there. When the virus flared in early March, Walsh knew he’d misjudged the situation. The president of the Boston Fed warned him that Covid might mean shuttering

schools and businesses soon, as well as cancelling key public events like the Boston Marathon and St. Patrick’s Day—potentially political suicide in Boston. Others in the local scientific and medical community concurred. Walsh and his team were as stunned as thousands of other public officials across the country, but what they did next was very different—and ultimately made a world of difference to the people of Boston and the surrounding area. The mayor listened, and then he acted—quickly. “He put together this daily crisis response meeting,” says McChrystal. “It was really magic.” On video screens run out of City Hall, Walsh and his chief of staff, Kathryn Burton would bring together an eclectic gathering of stakeholders—not just the city government, but also hospital administrators and private school leaders and bankers. Each day, they’d figure out what needed to be accomplished over the next day or few days, and by whom. They’d then start each meeting by going around and finding out what the status was of each assignment. Day after day after day, doing the nuts-andbolts work of keeping a city of 600,000 people operating and safe through one of the most disastrous episodes in U.S. history. “Marty was masterful at keeping everybody focused and inspired on this,” says McChrystal, who helped structure the setup. “So, as a consequence, instead of a bunch of different organizations pulling in different directions, there was a sense that we’re all solving this problem together, and we’re all getting ground truth every day. It was really impressive. He was willing to make tough decisions, which people knew were politically dangerous. And so I give him extraordinarily high marks for it.” So far, Boston has fared far better than many similar-size metro areas. Walsh was named U.S. Secretary of Labor by President Biden soon after his election. Walsh’s performance serves as a stark counterpoint to the lessons of Crimson Contagion—and also a reminder of how essential leaders and leadership are to making our organizations stronger and more

RUNNING THROUGH RISKS In Risk: A User’s Guide, Gen. Stanley McChrystal lays out some exercises to strengthen and maintain the Risk Control Factors, including: ASSUMPTIONS CHECK. While planning, get together and have all “stakeholders reflect on what they expect (not hope) will happen—and understand the impact if their assumptions prove untrue.” RISK REVIEW. Run annually, with quarterly reviews, through all the risks that threaten the organization most often, including probabilities, consequences, indicators and potential mitigations. RISK ALIGNMENT CHECK. Different teams examine a potential risk and plot the probability and consequences on an X/Y axis to develop a better understanding of how they’re thinking about the issue, hopefully jumpstarting needed conversations across silos. RED TEAMING. External players are brought in to take an outsider’s look at vulnerabilities within the organization— and game out how they might be exploited. PRE-MORTEM. Faced with a big decision or a potential risk, pull together a “focus group-like session” of stakeholders and ask them to speculate about what could go wrong.

resilient in the face of risk. It isn’t about charisma or scrambling or pep talks in the face of disaster. It’s about staying focused on the key processes that actually make organizations stronger. That’s the big takeaway from McChrystal’s work—as unsexy, perhaps, as it is vital. “We tend to look for leaders to provide something few ever really could—salvation from the things that threaten us,” McChrystal writes in Risk. “But the more constructive analysis would be to acknowledge that the real requirement in the people who lead us is not that status but actual leadership, or the ability to effectively oversee the multidimensional Risk Control Factors—to turn the dials, so to speak—to enable the Risk Immune System to operate successfully.” And help guide our people through whatever risk comes our way. CE

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A FT ER-ACTI ON R E PORT

‘THE LIGHTS

BARRETT EMKE

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WERE OFF’ Adam Aron, chairman and CEO of AMC Entertainment, takes us inside the pandemic’s wildest ride—the fight to save the world’s largest theater chain. AS TOLD TO DAN BIGMAN

HE PANDEMIC CREATED THOUSANDS of business survival stories, but none more improbable—and riveting—than that of AMC Entertainment, the world’s largest movie theater chain. Adam Aron, chairman and CEO of AMC, takes us behind the scenes to share how they kept the firm out of bankruptcy—and why—and shares his lessons learned. “I’m happy to say that where we sit today, we’ve survived this pandemic,” he says, Aron serves on the board of directors of Norwegian Cruise Line Holdings and is a co-owner and board member of the Philadelphia 76ers—an organization he also ran. They’re just part of Aron’s long career which includes stints as CEO of Starwood Hotels and Resorts Worldwide and CEO of World Leisure Partners. He also serves on Chief Executive’s CEO of the Year selection committee. The following was edited for length and clarity. Here Comes Covid

When I joined AMC in January of 2016, we were the second-largest movie theater chain in the U.S. Within a year and a half, we’d become the largest movie theater chain in the world. Everything was fine. We did have some debt. That’s how we chose to finance the business. We were at about five times that EBITDA or so, but we had very stable EBITDA. We had about $5.5 billion in revenue, [we were] publicly owned, traded on the NYSE. We did have class A/B stock. We had one shareholder that only owned about 50 percent of the outstanding stock. They had about 80 percent of the vote. It was Wanda Group, based in Beijing, one of the largest private companies in China. They happened to run the largest theater chain in China, the second-largest movie market in the world. They recruited me to run the company from the outside. We were just minding our own business having a grand old time. Once a year, there was a command performance where almost 1,000 of [Wanda’s] internal executives and senior officers of companies that they owned outside of China would come to a city in China for a combination of hearing annual performance results, a big pep talk and a gala dinner. It was quite a celebratory thing. The meeting for 2020 was scheduled for January 11 and

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12. It was in a city in China with a population of about 10 million people. I must admit I had no idea how to get there from Kansas City, where I’m currently based. That city was Wuhan, China. About a week before the meeting, around the 5th or 6th of January, I got an email from Beijing saying, “We’ve changed the location of our meeting. We’re not going to be in Wuhan. We’re going to be in Guangzhou.” I remember thinking, “How do they move a meeting of 1,000 people 1,000 miles a week out?” It seemed pretty difficult, as was figuring how to get to Guangzhou, China, and canceling all our tickets to Wuhan. When I got there, I said, “So why did you guys change where the meeting was?” And they said, “Oh, there’s a little virus in Wuhan.” So, I got an early read on the coronavirus. But you’ll recall that for all of January and most of February, it stayed in China. It had not migrated out. The next heads-up we got was February 23, 2020 when the city fathers of Milan told us that the virus had spread to Milan and, as a precaution, they wanted to shut six of our 1,000 theaters globally. Just three weeks later, we had to shut all 1,000 of our theaters globally in 15 countries. We went from $450 million a month of revenue to $450,000 a month in one week. We had $600 million of cash on hand. But when you’re burning $125 million a month, $600 million doesn’t last long. We did all the things you would expect. We reduced our capital expenditure program by 100 percent. We slashed our operating expenditures by 85 percent in six weeks. Yet, we were still burning through $100 million of cash a month. We furloughed all 35,000 employees. We didn’t have a choice. We were just bleeding cash. Into the Foxhole

The lights were off at the corporate headquarters. We were all trapped in our homes, if you remember what it was like back then. We were on the phone or figuring out FaceTime, Zoom or Teams. I remember seeing commercials for Teams on television in Q2. I didn’t even know what

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it was. I’d never heard of it. All of a sudden we’re running our lives on it. Congress was passing the Cares Act, so we knew that there would be ample unemployment assistance for our people. We also put in various HR policies that were vigorously debated internally. We let people draw down vacation balances at full pay and draw down sick pay. We went to zero pay status for 97 percent of our staff. I’d say about 50 to 100 of our staff were on 80 percent time and 80 percent pay, and maybe another 100, 200 people were on 40 percent time at 40 percent pay. But of course, we were all working seven days a week. We caught a break early. We were hoping to get government money. I personally was on the phone with 18 U.S. senators, the majority leader in the House of Representatives and the secretary of the Treasury all in one-on-one calls, saying, “If we don’t get Cares Act money, we’re going to file for bankruptcy in June or July.” And we didn’t get any Cares Act money because they said that we were too big and that from a public policy perspective that we needed to rely on so-called self-help, which wasn’t easy because nobody was lending any money to anybody at that time. I was on the phone every other day with

the senior senator from Kansas—our home city is Kansas City—who was fabulous. He personally called the chairman of the Fed and the secretary of the Treasury. We still got nothing. But the one thing that the secretary of Treasury and the chairman of the Fed did do in March was unfreeze the capital markets. We found out on a Tuesday in mid-April that it looked like we could raise a little public debt. We moved instantaneously. If there’s one lesson in all of this other than be bold, it’s move fast. There was no time to be bureaucratic. There was no time for PowerPoint presentations. We just had to move. We first heard the capital markets had a chance of unfreezing on Tuesday—by that Friday night, we closed a $500 million public debt offering that extended our financial runway by four months. While we were still in a very precarious circumstance, in midApril we weren’t 12 weeks away from running out of cash. We had a little more time. It was like that for the next eight months. Avoiding Bankruptcy

There’s no shame in bankruptcy, but let me tell you something—there is no joy in bankruptcy either. When you’re in bankruptcy,

“We went from $450 million a month of revenue to $450,000 a month— in one week.”

the fighting between the creditor groups is a zero-sum game. That’s not a relationship crowd. It’s a transactional crowd. And they’re all playing for the last penny. You spend a tremendous amount of time in bankruptcy court yelling at people and being yelled at. You spend a lot of time arguing about nickels, arguing about pennies. Yes, lots of companies can go through a bankruptcy process and get cleansed. You can get rid of some of your debt. But a lot of people are hurt in bankruptcy. Like, for example, all of our shareholders. Like, for example, not our first-lien debt holders, but our second-lien debt holders. And I had a fiduciary obligation to those people to do what I could to save their investment in our company. I ran Norwegian Cruise Line back in the early 1990s, when it was a turnaround situation. We were living with the threat of bankruptcy every day for three years before we accomplished the turnaround. We accomplished that without having to go into bankruptcy. I remember telling my board in the spring of 2020 that I didn’t put the first

CEO MAGAZINE / WINTER 2022 / 43

company I ran in bankruptcy when I should have, and I’ll be damned if I’m going to put the last company I’m going to run into bankruptcy when I should have. If we had to go into Chapter 11, I would have taken us there, but I was going to do everything in my power to prevent it if we could. The end of the story: We didn’t go into bankruptcy, and our share price has gone from $2 a share in January to $36 a share at the moment. Our debt, which was trading at 15 cents on the dollar, is now trading at par. So, people who would have been hurt in the bankruptcy process were not hurt. If you have the choice to go in or not go into bankruptcy, don’t listen to all of those lawyers and accountants and investment bankers who try to lure you in by saying how wonderful it is. What they’re not telling you is their fee streams go up astronomically if you file for bankruptcy. With AMC going into bankruptcy, we probably would have paid accountants, bankers, lawyers over $300 million in fees. Those accountants, bankers, lawyers know that. So, they give you self-serving advice that says, “Go into bankruptcy” because they have an enormous payday if that occurs.

“There’s no shame in bankruptcy, but let me tell you something— there’s no joy in bankruptcy either.”

Raising Money

We did it one step at a time. Our goal was to keep pushing off collapse until we could get to the other side of the pandemic. When we shut the theaters in March, people were saying we were shut for a month or two. In July, it was, “The theaters will be open by Labor Day.” By August it was, “Theaters will be open by Thanksgiving.” In October, “Well, they’ll be open by Christmas.” So, what do you do? Number one, you offer up ridiculous interest rates because there are people who want to take risk. In April, we raised $500 million through a public debt offering; the interest rate was, like, 12 percent. We thought that was the highest rate we’d ever heard of—until we

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paid to raise money in December. In July, we went through a fairly sophisticated bond exchange with our second lien holders where they put up $300 million of cash and eliminated $555 million in debt, just wiped it out, and eliminated $200 million of cash interest expense in exchange for peak interest if we raised them higher in the capital stack, so better protected on collapse. By late September, we’d raised all the debt we could. We knew we needed to raise some equity. But our banks said, “No one’s going to give you equity. It’s just too risky.” We’d heard of something called an at-the-money equity offering, where you sell shares in the open market. So we started with 20 million shares, not knowing what would happen. The same advisors who wanted to put us into Chapter 11 were telling us, “You’re not going to raise 50 cents.” We said, “Well, we won’t know until we try.” Sure enough, we raised about $50 million. So, we tried another 30 million shares and raised more. We tried again with another 20 million shares. From September 29 to early November, we raised $159 million, when all the experts said, “No one’s ever tried this before. We don’t think you’ll raise more than $25 to $50 million.” Well, we tripled it. But it was very clear the theaters weren’t going to reopen at Christmas [in 2020]. New movies were still being delayed. We now needed to raise enough money to make it all the way to July of 2021. So we announced publicly mid-December [2020] that we were going to try to raise $750 million in the next six weeks. If we didn’t succeed, we would have had to file for bankruptcy in February. Well, we didn’t raise $750 million. We raised $1.8 billion. We got the financial runway to last till the summer of 2022. That’s how we got there—one step at a time. We paid astronomical interest rates. I remember raising $100 million in December. This was debt at a 17 percent interest rate. As opposed to being outraged, I remember talking CEO-to-CEO with the head of a hedge fund that lent us the money, and I said, “You deserve 17 percent because you’re taking big risk. You’re taking almost

equity-type risk, even though it’s secured somewhere in the capital stack.” But it worked. We raised the money, and we’re here to tell the tale. Hard Talks With Investors

REUTERS / DAVID SWANSON - STOCK.ADOBE.COM

The lesson is to build up credibility when you don’t need it so you’ve got a reservoir of goodwill, and then tell the truth and don’t sugarcoat anything. Wanda was the Chinese company that owned 50 percent of our stock and had 80 percent of the votes. If they fell below a 30 percent ownership, their class A/B stock went away, and they went to one vote per share, which meant losing control. Now, mind you, in September 2020, before we started selling all this equity, we had 100 million shares outstanding. By June of 2021, we had 513 million shares outstanding. So, yes, Wanda was diluted, and they went from owning 50 percent to owning 20 percent, from having 80 percent of the voting stock to having 20 percent of the voting stock. [Wanda’s leaders] didn’t speak English that well, and my Chinese is nonexistent. We tended to communicate in writing, then they could hit the translate button, and it would instantly translate into Mandarin. In December of 2020, I remember saying to them—and I did have this reservoir of goodwill built up, they did trust me, and I always did tell them the truth—I said, “We only have four options. We need more money if we’re going to survive. Option one is you provide it to us,” which they knew and I knew they couldn’t do. The Chinese government, as a public policy matter, had put in currency controls that made it almost impossible for Chinese companies to get money out of the country because the government wanted those companies to spend that money at home to prop up the domestic economy, not on their overseas assets. Option two is we raise all this money, we’re going to dilute you badly, you’re going to lose control. And by the way, your stock price will probably quintuple, so your asset that’s worth $200 million today, it’s probably going to be worth $1 billion if we do this and we raise the money. You’ll be diluted,

but the share price is going to go up because right now the share price is priced as if we’re going to go into bankruptcy. That’s option two. Option three is we go bankrupt, the share price goes to zero and your share ownership, currently worth $200 million, is worth nothing. And option four is... those three ideas are the only three I have. Do you have a fourth idea? And I mean that. I said that to them. On option one, they couldn’t get us the money, and there were no hard feelings about that. They wanted to give us money, but they couldn’t. We knew it, they knew it. On option four, they had no other ideas. On option three, having their asset go down toward nothing was not good for them. So, their only choice was option two. It was not a hard conversation because we told them the truth, and we laid it out in an orderly way that made sense. I remember the response I got to this day: “Do what you need to do to save the company.” And good for them. They were a very responsible shareholder. Literally six weeks later, the stock was trading at $10 a share, and four months later, they sold out their stock at about $14 a share when it had been worth $2 a share in January. So, they made seven times their money by taking the risk on us that if we diluted them and raised enough money, the company could survive and their equity value would grow.

AMC’s Adam Aron built a well of trust with his top investors that he needed to draw on during the worst of 2020. “Tell them the truth and don’t sugarcoat anything,” he says.

The Improbable Comeback

Fast-forwarding to what happened between April of 2021 and now, like most public companies, we were 80 percent institutionally owned a year ago. Well, now

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we’re 80 percent individually owned. We have over 4 million shareholders who have an average position of about 100 shares each, a $3,000 or $4,000 investment—but there are 4 million of them. Our share price took off and we were seeing all this. And our first thoughts were, share price is rising, let’s sell equity in the market because we had been successful in September, October, November doing it. We had success in December and January doing it. So, in May, we sold enough shares of 45 million shares at $10 a share, and we were thrilled. We raised more than $450 million. Every time we put out a press release that said we raised more money, that just made people more confident in the future of the company. What was going on is some of our individual shareholders had a theory that they could squeeze short sellers. So, some of them were saying, if you’re increasing the supply of stock in the open market, that it hurts the chances of that thing happening. Our focus was doing right for the company, not participating in various theories of how market trading might work. And we knew that the most important thing for the company was raising cash. But what’s so fascinating is that we raised $450 million at $10 a share in the first two weeks of May. In the last week of May, two weeks later, we raised money at $20 a share. And a day after that we raised money at $30 a share. And two days after that, we raised over $500 million at $51 a share, just four weeks after we were thrilled that we had raised $400 million at $10 a share. So, what we did during that time is there was enormous volume and our stock share price was rising, we sold equity in the market, and we raised $1.25 billion between May 1 and June 1. And that’s a huge extra $1.25 billion of cash that we put

“Our focus was doing what was right for the company, not participating in various theories of how market trading might work.”

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in the bank to buttress our liquidity going forward. Lessons, and the Road Ahead

In our case, we have a unique problem. Our company’s market cap, in its history, was never more than $3 billion. And our market cap today is $18 billion or $19 billion. And we don’t have the EBITDA that we had in 2019. So, some people note a disconnect there, and that’s why there are so many naysayers who continue to say our share price will plummet. But they’re looking at the company of yesterday. They’re just assuming we’re going to bring back the same company that we had in 2019. We know what that company was worth. It was never worth $19 billion. So, the question that my whole management team, but especially Sean [Goodman, CFO] and I, are now wrestling with is: What do we do with the war chest that we’ve been entrusted with by the shareholders to transform our company so that the company that we bring back out of the pandemic is a different company than the company we took into the pandemic? How do we transform AMC to grow into that $18 billion to $20 billion valuation that we’ve had since the spring? In our core industry, there’s a lot of cathartic change underway. No one exactly knows how that will play out, not the CEO of AMC, not the CEO of Disney. We all know it could play out any of a number of different ways, but only fate will determine which way it actually plays out. But no matter how it plays out, just bringing back the AMC of old is not going to be enough to sustain our current share price. So, we’re looking at how we can transform the company. Create new lines of business based on expertise that exists within the company. Potentially use some of that cash hoard to acquire other companies, not necessarily in the movie business. But that’s the degree of specificity that I can give you in a public forum, since we’re not out there yet publicly disclosed on all the ideas that we have and what roads we may go down. CE

TOOLB OX

‘ALWAYS GO TO THEM’

It’s not enough to know what your customers want anymore; you’ve got to anticipate their needs—and deliver. CEOs share their tactics. BY DALE BUSS

FEW PRODUCTS HAVE BEEN SO UNCHANGING in their outer form as

“We’ve been delivered an enormous group of new customers that we wouldn’t have seen otherwise.”

—Bob Wheeler, CEO, Airstream

Airstream trailers, whose now-iconic “silver bullet,” riveted-aluminum shell has remained basically the same since Wally Byam put together his first Airstreams and began selling them in the early 1930s. But by changing what’s in, above and around the basic shape, Airstream has continually freshened its product line for the most discriminating class of customers in the recreational-vehicle market. And as they came out of the pandemic, those customers were demanding Airstream make it easier for them to perform white-collar work out of their trailers. That’s how the company came up with the Flying Cloud Office, a 30-foot version launched in early 2021 that features a dedicated office space with a wide desk, multiple USB ports, sliding drawers and cubbies, an overhead dry-erase board, a comfortable swivel chair and securing strap, a chair mat, blackout curtains and a divider that deadens sound from the rest of the trailer. Airstream didn’t just figure out the Flying Cloud Office by osmosis: It relied heavily on input from hundreds of customers through formal relationships, as well as heavy communication via dealers, social media and one-on-one outreach to owners of Airstreams whose price tags can push $200,000. “These conversations were an important part of developing the Flying Cloud Office because they provided valuable insights into how our products were being used out in the wild,” says Airstream CEO Bob Wheeler. “Going forward, they’ll provide important perspectives on big issues like towing, power and electrification, resource availability and conservation.”

CEO MAGAZINE / WINTER 2022 / 47

Mark Herrema’s Newlight Technologies is looking for a consumerdriven pathway to healing the environment.

Indeed, customer feedback on products is probably the most important discussion going on right now at Airstream. “We’ve been delivered an enormous group of new customers that we wouldn’t have seen otherwise,” Wheeler concedes. “So, how do we make sure we don’t squander this opportunity? We’ve been redoubling product development on top of increasing manufacturing capacity.” For most CEOs, product development has become more strategic in a new environment ripe with post-Covid opportunities, riven by difficulties in supply components for existing products, demanding of accelerated digital transformation—and yet fraught with penalties for missteps at such a fateful crossroads. Only continued product innovation keeps companies in lockstep with their customers and crucial steps ahead of their competitors. Chief Executive talked with dozens of CEOs, product-development chiefs, industry consultants and others to glean insights about the elements of product-development success for the new era. Here are some strategies they shared: Ramp Up Responsiveness

“Tapping into your customer relationships and gathering their detailed, firsthand input about individual challenges—and then solving for them specifically—is a surefire way to ensure you’re delivering a meaningful product,” says Barry Conlon, CEO of Overhaul, a supply-chain technology provider based in Austin, Texas. It’s an approach that United Wholesale Mortgage founder Mat Ishbia also used in developing the technology-based products his company uses to help mortgage brokers satisfy home buyers better than banks and other retail lenders. Brokers were telling him they wanted to make the application and approval process “faster, easier and cheaper,” says the CEO of the Pontiac, Michigan-based U.S.-industry leader in wholesale mortgages. “I thought about what was the best thing for our clients, and the business would follow,” Ishbia says. So a few years ago, the company built a technology platform called YouClose that gives brokers the digital levers to close a loan within 15 minutes instead of the traditional days or weeks. “No one has come

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close to duplicating it.” CEOs can systematize the process of garnering product insights and ideas from customers. For example, members of the executive-leadership team of Kaseya, a management-software company, call customers daily to get a “pulse check on what’s working and where we need to pivot to improve,” says Fred Voccola, Kaseya’s CEO. “This guides our product roadmap to ensure that we aren’t just looking for the ‘cool new feature.’” Airstream established its Airstream Customer Council in 2019 and adapted 21 product and customer-experience improvements recommended by the group in the first year. For its annual reseating in 2021, Airstream had 800 applications and selected 15 owners, more than half of whom had been “Airstreamers” for a year or less. For the Flying Cloud office, “we didn’t just talk with them about functionality but also about things like the importance of privacy in such a configuration,” says McKay Featherstone, Airstream’s vice president of product development and engineering. “We can always go to them.” Sunny Sanwar, CEO of Dynamhex Technologies, says “companies should be detectives, piecing together disparate clues to figure out what customers might do next.” The chief of the provider of energy-consumption and carbon-footprint data based in Kansas City cautions against “development sprints to get a shiny object out the door. Capture the experience of potential customers—or lack thereof— and create something that the status quo can’t keep up with.” For job search site College Recruiter, reading customers meant coming up with a new product line that charged employers for how many candidates were being brought to them by the company’s job postings instead of being charged for the number and duration of position listings. “We thought at first that it was just a different way of pricing the same product, but our customers showed us that it really was a different product,” says Steven Rothberg, president and founder. “Our employees needed to make a whole bunch of new mathematical calculations intuitively and then communicate that to a [customer] who’s not good at math and just wants to know how much it costs.”

Start with ‘Why?’

BERRY GLOBAL: BEYOND CUSTOMER RESPONSIVE

With a nod to Simon Sinek, Julie Guest says the first question in developing any new product is, “Why do we need this innovation?” says the CEO and chief marketing strategist for marketing agency Bolder & Louder. “Once you know the ‘why,’ now you can be laser-focused about the ‘what’ and ‘how.’” For Mark Herrema, the “why” was because he wanted Newlight Technologies to help solve climate change. The cofounder and CEO graduated from Princeton University in 2004 with a determination to harness ocean microorganisms that eat greenhouse gases and make industrial ingredients out of them. “If we could do that,” Herrema says, “we could create a consumer-driven pathway to healing the environment.” So Herrema’s startup spent a decade developing a biodegradable white carbon powder he called AirCarbon that could be melted and used as a substitute for plastic, revealing it to the world in 2013 just as global concerns about waste plastics were mounting. “We had outreach from many brands,” he recalls, “but we knew that most [plastic wastes] accumulating in the ocean were related to food and foodware. So we decided to focus there.” And recently, Newlight’s Restore brand of AirCarbon disposable straws and cutlery debuted in Target stores, just as millions of American consumers are looking for environmentally friendly foodware products. Next up: a wider variety of foodware products and a diversification into AirCarbon-based handbags, wallets and eyewear. Eric Sklar began ideating a broader product purview for NuStep in 2018, soon after he took the helm of the Ann Arbor, Michigan-based maker of “recumbent cross-trainers” for rehabilitation from heart surgery. “I wanted to identify what value the company brings,” he says. “Before I joined, they thought of themselves as a recumbent-training company, and now I feel we’re an ‘inclusive’ company building inclusive equipment that our customers have been expecting from us.” In practice, this means NuStep is broadening applications for its machines to aim them at new customers and new markets, such as orthopedic-surgery patients. “We’re setting the foundation for having to change

AS THEY EXPANDED BEVERAGE offerings, fast-food restaurants demanded suppliers come up with transparent cups and lids that could showcase smoothies, coffees and other concoctions that have become a crucial profit center for the industry. Berry Global responded with see-through new versions of its Bantam cup line that kept the drink taps flowing as post-pandemic demand skyrocketed. “These operators wanted products made with clear, more recyclable substrates,” says Tom Salmon (above), CEO of the Evansville, Indiana-based plastics maker. “What’s inside the cup is incredibly valuable, and being able to market their drinks in that way creates confidence in our customers. So, we’ve provided one with lower costs, lighter weight and a more sustainable and clear solution.” The key to success with the new Bantam cup was molecular engineering and harnessing of thermoforming technology that enabled the obsoleting of opaque, non-recyclable cups in favor of clear, polypropylene-based, mor- recyclable cups. The clear cups also make it easier for restaurants’ speed of operations and behind-the-counter automated filling stations to figure out when to stop pouring. Complementing the Bantam cup is Berry’s next-generation polypropylene lids, improving their strength and durability as well as recyclability. Berry’s integrated customer-relations team—combining innovation, applications and technology groups—identified the need a few years ago. “The challenge was to bring the product with increased performance characteristics—not just being able to see the product, but also for durability and recyclability—at a neutral price or better,” says Jeff Mann, EVP of innovation and sustainability. “Everyone wants more, but they don’t want to pay more.” Now, Berry Global is trying to not only react to what customers say they want—but also anticipate what they might need. “We decided to carve out a group that’s more focused on innovation and give them the responsibility to get ahead of the curve, whereas historically we’ve been customer-focused and waiting on customers to direct us,” says Paul Wolak, senior technical director of innovation and sustainability. “You could get behind the curve waiting for customers to decide what they want. Now, we’ve got a focused group trying to get ahead by understanding materials, processes and capabilities we need to support our customers—versus waiting for them to decide, and then for us to react.” For instance, this group anticipated that Berry customers would want to replace polyester film for prepared-food packages with “something clear, glossy, shiny and pretty, giving you that wet look on the store shelf—but recyclable,” Wolak says. Management decided to dedicate a few million dollars to invest in new equipment to produce it, even while Berry Global was still running the first 10 trials for customers to evaluate a product they hadn’t necessarily asked for. “Under the previous regime, we might have been a year and a half later in this development,” Wolak says. “If you wait on customers, you might miss the market.”

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“I wanted to identify what value the company brings.”

—Eric Sklar, CEO, NuStep

and never sitting still,” Skylar says. Live Real Farms is a new beverage brand launched by Dairy Farmers of America after the farmer-owned cooperative saw American consumers sprint into plant-based milk analogs. After decades of decline, the dairy industry can ill afford much further leakage in consumption of fluid milk. Milk + Almond is the nation’s first “hybrid” offering that blends milk with plant ingredients. “As we saw the ‘flexitarian’ trend grow, it was important from our perspective to find ways to deliver modern beverages that get dairy to consumers,” says Rachel Kyllo, senior vice president of marketing and innovation for dairy brands for the Kansas City-based outfit. “We believed this could be the best of both worlds, coming together in one product.” Search for White Space

Levenger literally examines desktops for physical spaces where it can fit new products in its lineup of fountain pens, notebooks, quality paper, briefcases and so on. “You think of the ecosystem of the desk and a share of the desk, not the wallet,” says CEO Margaret Moraskie. “There’s still a need for new products even after we’ve become so technologically advanced. Right now, people are paying big money for digital detox.” The search has even taken the company back to its archives for defunct products that might resonate with consumers who are increasingly oriented to home offices. Among them: book weights and copper page nibs “that are great for homeschooling,” Moraskie says. Levenger also is bringing back an oldschool portable lap-desk and improving it by putting tuckaway legs on it. Enzymedica continually looks at gaps in the consumer lineup it can plug with new supplements, focusing on specific markets such as heartburn products. “There was white space there because OTC and prescription drug products have histories of side effects for long-term usage,” says CEO Scott Sensenbrenner. “The category needed immediate benefits and zero side effects with a natural product.” So Enzymedica partnered with the Roskamp Institute, a medical-research organization in Sarasota, Florida, to develop such

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a supplement with ingredients that include a type of seaweed that “has a very unique, protective effect that works very rapidly in the body,” Sensenbrenner explains. In the technology business, says Dean Guida, founder and CEO of software outfit Infragistics, there are three ways to find unoccupied nooks and crannies and even somehow wide-open, unexplored market opportunities. One is to understand products already in the market “and identify patterns where the competition really isn’t solving the problem,” he says. Another is to “see a better way to solve the problem that will give you a clear competitive advantage.” A third path to finding white space is to “see a big platform vendor and product in the market and add value on top of it. That’s the fastest path to revenue, but it also doesn’t sustain revenues or have a long life cycle because every time a vendor releases a new product, you’re shaking in your boots.” Reckon with Digitization

The digital imperative is transforming product development, and CEOs need to keep this top of mind. Ford CEO Jim Farley was doing exactly that in May when he told investors the traditional automaker is transitioning to a technology-driven growth company behind new features such as over-the-air software updates. “This is our biggest opportunity for growth and value creation since Henry Ford started to scale the Model T, and we’re grabbing it with both hands,” Farley said. That approach is consistent with Dave Sovie’s advice. “Traditional hardware-oriented products were historically about mechanical engineering,” says the senior managing director for Accenture consultants and author of the book, Reinventing the Product. “Today, the product is smart and connected and AI-powered and much more driven by software and data. For the CEO, that means thinking through the product roadmap, and the product is a platform that is upgraded over time.” The next logical step in that thinking is, “if a product is smart and connected, why sell it just as a product? Why not sell it as a service? Also, Wall Street gives higher business valuations to recurring-subscription models than to transaction models,” Sovie says.

Embrace Iteration

Forego “big-bang launches once a year in favor of more continuous innovation with agile engineering,” Sovie advises. Kryon Systems takes such an approach with its robotic process-automation software that, for example, has helped customer Wyndham Hotels identify and map processes for onboarding new properties. When the Tel Aviv-based company introduced its newest software platform, called Discover, Kryon “released it to market sooner than others might have because it wasn’t perfect,” says CEO Harel Tayeb. “Instead of waiting for something that was bulletproof, we took it to market, released it, and every month, with very small iterations, we release an update for this product,” Tayeb explains. “That makes it much more valuable for our customers. We use the market as a lab.” Brother Mobile Solutions is confident its upcoming new hardware platform will be a big hit because its label-printing technology will offer a blockchain solution for greater security of supply chains and will integrate not only with ERP systems, such as SAP and Oracle, but also with increasingly popular warehouse-management systems such as Blue Yonder. But the new platform came from the company’s approach that favors constantly putting players “on base” with “singles” rather than trying to hit a home run every time at bat. “There’s big focus on generating ideas and then nurturing a portfolio of those ideas that we think will work, but not necessarily making a huge bet on any of them,” says David Crist, president of the Broomfield, Colorado-based arm of Japan’s Brother International. “We score them and gradually, incrementally invest in the best and make it the next product to be developed.” Get the Structure Right

Abandon the siloed approach to product development in favor of multidisciplinary teams. “Leading CEOs are combining people who know the customer experience and user interface with hardware engineers and software engineers with services people who understand how the product is used in the field,” Sovie says.

Give your people some freedom. “If you as CEO set the goal and the vision and direction and let teams and people come up with the how-to-get-there, they think of a lot of interesting and better ways,” Guida says. “Giving them autonomy to execute facilitates innovation in new products and processes.” For that reason, in fact, Cranbury, New Jersey-based Infragistics recently launched a $50 million innovation lab that will fund internal inventors to experiment with innovations beyond the company’s core user-interface and user-experience products “without an immediate need to generate immediate revenue,” the company says. Jeff Beck, president and CEO of Leaf Home Solutions, has brought all product-development efforts in-house during his seven years at the top of the maker of gutter-protection systems and other home-maintenance products, even though he has steadfastly kept all manufacturing outside on a contract basis. “That way we get 100 percent effort all the time in product development,” Beck says. “If you outsource, they’ll do what you want, but it just takes too long.” The $1.1 billion company based in Hudson, Ohio, is in the midst of a new-product push that includes not only larger, California-style gutter covers but also walk-in tubs, shower bases and stairlifts. “We built a team that is forward-thinking and agile.” Indeed, for many CEOs, seating themselves atop the product-development pyramid is an important part of the structure of the function. Christine Specht, for example, personally decides on any iterations to the submarine sandwiches and other products that her family-owned chain, Cousins Submarines, has made regionally famous in Wisconsin and Illinois. “Nothing is on the menu that hasn’t come across me, because I want to make sure it fits what we’re doing,” says CEO Specht. “We have adventurous consumers who want to give something else a try. But we recently tested a number of different plant-based options for sausages and meatballs, and they just didn’t quite fit what our focus is. We’re probably not going ahead anytime soon with something that’s specifically meant to look and taste like meat—‘but it’s a plant.’” CE

“There’s a big focus on generating ideas and then nurturing a portfolio of those ideas that we think will work.”

—David Crist, President, Brother Mobile Solutions

CEO MAGAZINE / WINTER 2022 / 51

EC O N O M IC D E VE LOPME NT

REGIONAL REPORT

WEST & SOUTHWEST From a surge of IPOs in Washington State and manufacturing momentum in Utah to greater growth in smaller Texan cities, it’s an exciting time in the West and Southwest. BY CRAIG GUILLOT 1* TEXAS

*State’s rank in the 2021 Chief Executive Best & Worst States for Business (chiefexecutive. net/the-best-worst-states-forbusiness2021)

RURAL DEVELOPMENT IN THE LONE STAR STATE While Texas’ big urban areas like Dallas, Austin, Houston and San Antonio often capture the headlines, the big story is now in the smaller cities, said Robert Allen, president and CEO of the Texas Economic Development Corporation. For example, Laredo, the largest inland port on the U.S.-Mexico border, recently opened the largest avocado-ripening facility in North America. Abilene also scored one of the most significant projects in its history when Great Lakes Cheese announced a $185 million packaging and distribution facility that will create 500 jobs. And the city of Lubbock received the largest private capital investment in its history ($870 million) from Leprino Foods. “The pandemic opened people’s eyes to the Tier 2 and Tier 3 markets,” said Allen. “We can present several options and deliver on all fronts. There are a lot of spaces outside of urban cores where Texas can deliver.” While those smaller places might be the latest exciting story, development is still

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going strong in urban cores. Texas Instruments continued to expand in Dallas and recently announced a $3 billion expansion. Samsung is also considering locating a $17 billion semiconductor plant in Taylor, outside of Austin. “There’s a verified track record of success that Texas presents to businesses, and you see this long-term growth,” said Allen. 8 NEVADA A WEST COAST ALTERNATIVE In response to recent supply-chain disruptions, many manufacturers and distributors now seek to spread out their operations on both coasts and in the central U.S. Part of that includes eyeing up more locations on the West Coast to access Pacific ports and the region’s large population base. Kroger, Ball and Crown Cork & Seal have announced new facilities in the state in the past year. “There were many companies that did not want to be in California, and now they’re coming to Nevada. Suddenly our geography became very important,” said Mike Brown, director of

TEXAS Governor Greg Abbott and local officials welcomed Leprino Foods’ announcement of a manufacturing facility that will bring 600 new jobs to Lubbock.

the Nevada Governor’s Office of Economic Development. The Tesla Panasonic Gigafactory also continues to fuel growth in the lithium sector. Nevada has large natural mineral deposits of lithium, something that is driving an entire chain from mining through lithium battery use to lithium recycling. Like many states, Nevada is now dealing with the challenges of the Great Resignation. The Office of Workforce Innovation aims to reduce siloes in the state and build a collaborative effort to address workforce and energy issues. The Emsi Skills Match Tool allows individuals to go to their computer and get a complete analysis of their skills, what kind of job may work for them, and what type of training they may need. The state has also put a greater focus on community colleges, training and apprenticeships. “We have all of these federal resources coming now, and it’s going to be about the thoughtful deployment and investment of those funds for the future,” said Brown. “My office has been fully deployed in how we allocate those funds because there is a once-in-a-century opportunity.” 10 ARIZONA ELECTRIC GROWTH The Grand Canyon State recently reached new goals in economic development. During the 12-month fiscal period ending June 2021, the Arizona Commerce Authority worked with companies to land 23,317 new jobs and net nearly $25 billion in local investments. With fast in-migration and a robust talent pipeline, Arizona has become an epicenter for advanced manufacturing with rapid growth in semiconductors, electric vehicles, batteries, biotech and aerospace, said Sandra Watson, president and CEO of the Arizona Commerce Authority. “Arizona’s economic development momentum is as strong as ever—with no signs of slowing down,” she said.

One particular area with solid momentum is the electric-vehicle industry. Within 16 months, the state welcomed three electric-vehicle manufacturing plant groundbreakings, by Lucid, Nikola and ElectraMeccanica. In addition, two of the world’s largest semiconductor companies, Intel and TSMC, announced more than $32 billion in projected investments. Part of Arizona’s challenge is now ensuring it can continue cultivating the talent it needs to stay on top. The state developed a robust STEM talent pipeline involving community colleges and K-12 education systems to meet the demand for skilled workers. “Technology is changing faster than ever, requiring workers with increasingly adaptable and advanced skillsets,” said Watson. “To stay ahead of evolving trends and technologies, we must continue to build connections among industry, education and government to ensure our highly skilled workforce remains ready to take on the jobs of tomorrow.” 11 UTAH MANUFACTURING NEW OPPORTUNITIES The Beehive State is at an unprecedented time in its history, said Ben Hart, deputy director of the Utah Governor’s Office of Economic Opportunity. The economy is growing at a rate of 3.3 percent, and unemployment is at a record low of 2.4 percent, according to the most recent data. As the global economy undergoes a massive recalibration, Utah is well positioned to capitalize on opportunities in several industries, including tech and manufacturing, said Hart. While the Silicon Slopes has driven most of Utah’s development in recent years, some of the fastest growth and most momentum is now in manufacturing, said Hart. He attributes part of this to the state’s ramp-up in PPE equipment at the start of the pandemic, which then spurred growth in the sector. “We’ve had a lot of manufacturing compa-

ARIZONA In May 2021, ElectraMeccanica broke ground on a new U.S. assembly and engineering plant for electric vehicles in Mesa.

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$10 million expansion and added 85 jobs in Sheridan. While traditional industries performed well in 2021, there are also other opportunities on the horizon. Nuclear innovation company TerraPower announced in November 2021 it will construct a reactor demonstration project in Kemmerer. “We are focusing on how we add value to our core industries and leverage those efforts to active new sectors,” said Gullberg. 20 COLORADO

WYOMING TerraPower chose Kemmerer as the site of its advanced reactor demonstration project supported by the U.S. Department of Energy.

nies that we’ve announced expansions for here in the state,” said Hart. For example, Northrop Grumman announced in January 2020 an expansion on the GBSD project near Hill Air Force Base that will create 5,000 new jobs. Texas Instruments announced in June 2021 that it would buy Micron Technology’s factory in Lehi for $900 million. In addition, the state is also winning smaller manufacturing projects in rural areas. “It feels like for the first time in our state’s history, we’re firing on all cylinders, in the sense that it’s not just urban but urban and rural, and across all kinds of industries,” said Hart. 16 WYOMING WIDE OPEN FOR DEVELOPMENT While the early part of the pandemic lessened demand for coal, oil and gas and hampered Wyoming’s revenues, the state is bouncing back. Low tax rates and an open economy led several companies to take a fresh look at the state in 2020 and 2021, said Ron Gullberg, strategic partnerships director, with the Wyoming Business Council. “These financial tools, as well as a very favorable regulatory structure, make Wyoming one of the most business-friendly states in the nation,” he said. “Open spaces and opportunity for an adventurous lifestyle attract not only businesses but remote workers.” ISA Corporation and Avalon International Aluminum both relocated operations from Oregon to Evanston in the past year. In addition, metal manufacturing company EMIT Technologies completed a

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COMPOUND GROWTH IN THE CENTENNIAL STATE Colorado continues to demonstrate a strong rebound from the pandemic with consistent growth in GDP, employment, retail sales and other economic factors, said Michelle Hadwiger, director of global business development for the Colorado Office of Economic Development & International Trade. Restaurant and hotel revenues exceeded their pre-pandemic levels for the first time in June 2021, and the state GDP increased nearly 12 percent year-over-year in Q2 2021. New business filings increased more than 21 percent in the 12 months ending September 2021. “Like the rest of the country, the state’s economic recovery is influenced by swings in Covid-19 case rates, supply-chain shortages and inflation,” said Hadwiger. Hadwiger noted that from 2010 to date, Colorado has outpaced national growth by ten percentage points or more in nine industries, including bioscience, aerospace, advanced manufacturing, and transportation and logistics. There have been several notable announcements in the Centennial State in the past year. European online sportsbook Tipico selected Denver for a technology hub with a projected 441 new jobs, and Strive Health announced another 250 jobs. In April 2021, P2P truck-sharing platform Fluid Truck announced an expansion of its headquarters and 1,500 new jobs in Denver. “We are excited to build here in Denver,” James Eberhard, CEO and founder, Fluid Truck, said in a statement. “We believe Colorado has all the elements to create big companies outside of the coast and look forward to helping grow the next wave of technology leaders and innovators.”

21 IDAHO MANUFACTURING POST-PANDEMIC OPPORTUNITIES With two consecutive years of record budget surplus and tax relief coupled with significant infrastructure investments, Idaho’s economy continues to surge, said Tom Kealey, director of the Idaho Department of Commerce. Food processing and advanced manufacturing remain two of the fastest-growing sectors in the state. Last fiscal year, 16 companies either expanded or located in the state due to the pro-business climate and economic resiliency, said Kealey. AZEK announced in March 2021 it would establish a new production facility and create 146 new jobs in Boise. Metal Quest announced in January 2021 an expansion and 25 new jobs in Kootenai County. And in July 2021, Lamb Weston announced a $400 million expansion and 130 new jobs on its processing line in American Falls. “Idaho’s economy continues to grow, prospect and attract business, thanks to the combination of a highly skilled workforce, low taxes, limited government regulation, efficient infrastructure and the state’s natural beauty,” said Kealey. However, like most states, Idaho is now challenged with talent recruitment and retention. To address this, it has created career and readiness workforce initiatives like Idaho Launch and Next Steps Idaho. “The state will continue to provide assistance and guidance to Idaho businesses and organizations to combat this problem headon,” said Kealey. 25 MONTANA BIG POTENTIAL IN BIG SKY COUNTRY Montana demonstrated record new business and personal income growth over the past two years, said Bridger Mahlum, government relations director at the Montana Chamber of Commerce. In 2020, more than 3,500 new businesses were created in the state, the fastest rate in the past 10 years. Montana also now has the fourth-highest rate of business ownership in the nation, with 6.3 percent of households reporting income from a business or a farm.

High-tech, one of the fastest-growing sectors, generated more than $2.9 billion in revenues in 2020, more than $400 million more than the previous year. Mahlum attributes this partly to changes brought on by the pandemic, such as the great shift to remote work. Manufacturing is also booming, growing more than double the national average in employment, income and output. “Companies appreciate the work ethic of Montanans,” said Mahlum. “We regularly hear from multistate employers about the commitment of their Montana employees relative to others. Quality of life, outdoor recreation, cost of living and a relatively predictable legal climate are other factors that draw business investment.” NorthWestern Energy announced in May 2021 plans to build a $250 million natural gas plant in Laurel. TDS Telecommunications started construction on a 500-mile fiber-to-the-home network in Billings in September 2021. Cognizant ATG broke ground in early 2021 on two new facilities in Missoula to accommodate 350 new employees. And in October 2021, Gov. Greg Gianforte reopened the Montana Asia Trade Office to focus on generating opportunities and expanding sales and investments across sectors like wheat, pulse crops, machine, education and pharmaceuticals. 35 NEW MEXICO

MONTANA “Quality of life, outdoor recreation, cost of living and a relatively predictable legal climate” are among the factors drawing business to Montana. —Bridger Mahlum, Montana Chamber of Commerce

ENCHANTING DIVERSIFICATION Economic development officials in the Land of Enchantment recently released a 20-year strategy for diversifying the state’s economy. It was developed with $1.5 million in federal recovery funding and sought to identify where the state could build the most momentum in diversification. The state hired research institute SRI international to engage more than 100 public, private and nonprofits to design an actionable long-term plan. Empower & Collaborate: New Mexico’s Economic Path Forward identified the state’s primary challenge areas, then sought to address them in a path forward to build a robust economy that “engages local talent, cultivates innovation and delivers prosperity for all New Mexicans.” It highlights several industries, including cybersecurity, aero-

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space, biosciences, film, green energy and global trade, then lays out ideas to streamline regulations and create better pathways from higher education to industry. 44 OREGON

OREGON Hillsboro will be the site of Genentech’s new state-of-the-art fill/finish facility.

INNOVATING A NEW FUTURE FOR TECH The Beaver State found new optimism in its innovation prospects when expense reporting company Expensify made an IPO in November 2021, the first tech IPO in the state since 2004. This comes at a time when state officials are trying to foster more innovation. In February 2021, the Oregon Futures Commission released the 10-Year Innovation Plan, a roadmap to expand the state’s innovation ecosystem and encourage entrepreneurs to start businesses. The 96-page plan has four key strategies. It includes helping Oregonians turn ideas into commercialized products and developing support services for entrepreneurs. It also ensures access to risk capital and promotes Oregon as a place to start and grow innovative companies. Oregon has also had several notable announcements in the past year. Genentech announced in March 2021 a $175 million expansion and 100 new jobs at its facility in Hillsboro. Facebook announced in March 2021 the construction of a $2 billion data center in Prineville, and Amazon announced a $27 million fulfillment center and 1,800 new jobs in Woodburn. 46 WASHINGTON GOING PUBLIC The Evergreen State has experienced a historic surge in IPOs in the past year. As of October 2021, 15 companies in the state had announced initial public offerings, compared to only one in the past four years. Seattle-based fintech Remitly raised $300 million through an IPO on Nasdaq in September 2021. In the largest-ever IPO for a preclinical biotech company, Sana Biotechnology raised more than $587 million

in February 2021. Other Washington state biotech companies to go public in the past year include Impel NeuroPharma, Codiak BioSciences, Athira Pharma and Silverback Therapeutics. And in August 2021, cannabis marketplace Leafly announced an estimated $532 million IPO. Washington is now continuing to cultivate homegrown entrepreneurship and innovation through several initiatives. The Equitable Innovations Accelerator supports “entrepreneurship for all by prioritizing entrepreneurs from underserved and historically marginalized communities.” The first-of-its-kind program provides 10 tech startups with up to $100,000 in non-dilutive philanthropic grants, programming and access to mentors and coaches. 50 CALIFORNIA GOING BIG IN THE GOLDEN STATE While California continues to rank rock bottom in Chief Executive’s Best and Worst States for Business survey, there’s no shortage of businesses investing in the state. And despite the ongoing headlines about doom and gloom, recent data points to an impressive pandemic rebound. In November 2021, the Governor’s Office of Business and Economic Development announced $150 million in tax credits for several projects. Infinity Energy announced a manufacturing facility and 209 new jobs in Fresno. EnerVenue announced 1,692 new jobs in Fremont to manufacture super high-capacity nickel-hydrogen batteries. And Vietnamese EV manufacturer VinFast announced a $200 million capital investment and 1,065 job to establish its U.S. headquarters in California. “VinFast was established to bring affordable luxury electric vehicles to the U.S. market, and we are already building a world-class corporate team in the U.S. center of advanced transportation and smart technology,” said VinFast U.S. CEO Van Anh Nguyen. “We greatly appreciate the support of the state of California as we prepare to launch a brand that will significantly increase EV adoption worldwide and help California and the U.S. meet critical environmental goals.” CE

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L E A D ERSHI P SUMMI T Former GE CEO Jeff Immelt

UNLOCK YOUR

TEAM’S POTENTIAL

In a hyper-complicated business landscape, you can’t always see what’s coming—but there are still moves you can make to fortify your people for an uncertain future. At Chief Executive’s Leadership Summit, veteran CEOs and leading business thinkers offered six strategies for spurring teams to adapt, innovate and execute in the new normal. THESE DAYS ARE THE AMERICAN CEO’S equivalent of wartime, with bullets flying from the supply chain, inflation, labor shortages, political polarization and more. Yet business remains generally good for most companies, and the U.S. economy seems to be motoring through. Navigating this dangerous and yet strangely opportunity-laden terrain requires leadership that blends keen analysis of the unprecedented current landscape, with the ability to look around corners and an emotional intelligence that is able to keep employees, customers, shareholders and vendors with you. “We’re in a fight right now, but there are two things you have to avoid: One is giving up; the other is getting bitter,” said organizational-health expert Patrick Lencioni. “Be honest about what you see and stand up for what is right, but do it in a hopeful way—and don’t be bitter. That’ll be good for you and the people you lead.” Chief Executive tapped into Lencioni and five other brightest minds in the field to speak at our annual Leadership Conference, held in November in Phoenix, with 200 executives attending in person and hundreds more virtually. We brought in speakers we knew would equip today’s leaders with strategies, tactics and hacks for meeting the moment, including former General Electric CEO Jeff Immelt. Here are some of the best things they shared.

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DON’T LET YOUR SEAT GET HOT JEFF IMMELT FOLLOWED THE LEGENDARY JACK WELCH as CEO of GE, the company that was the pinnacle of American industrial diversification before suffering a decade-long nosedive that culminated with it being busted up into three companies by current CEO Larry Culp. In his book Hot Seat, Immelt wrote about his 16-year run at GE’s helm, which ended with his being pushed out in 2017. With equal candor, he told his peers what he’s learned from running GE—and since then—that could benefit other business leaders. Manage complexity: The macro picture is “hyper-complicated” for CEOs these days, Immelt conceded. “So having a simple framework for your company and your priorities is key. Do your best to see around corners. But if you can’t, have a lot of cash—there’s no substitute for that. It can buffer.” Listen to the right voices: “Don’t listen to everyone all the time,” he said. “The key is you’ve got to have a cadre of people you can trust and you trust all the time, and have them around you and [give] them a true voice.” Build a horizontal core: Leaders can be tempted to pay attention mainly to great performers and to laggards, but Immelt urged “building a horizontal cohort of senior leaders that are culture carriers. Are they loyal to each other? I never cared that much if people were loyal to me per se, but I wanted them to be loyal to each other and be able to motivate themselves and others in the organization.” Predict the future: Immelt suggests asking three questions: How fast can you learn? How much can you give to others? How much pain can you take? The third question can be the toughest. “Typically, you quit on yourself or pull back at your company when you should go forward,” he said. “You have to find ways to answer the call, to go to bed at night though you feel like a complete failure. In the morning, you’ve got to shave and say, ‘Hello, handsome—you’re amazing!’”

BUILD—AND REBUILD—EFFECTIVE TEAMS PATRICK LENCIONI IS CO-FOUNDER OF THE TABLE GROUP consultancy, a contributing editor for Chief Executive and bestselling author of several classics, most notably The Five Dysfunctions of a Team. He conceded that because of today’s “stresses on business and the customer and the economy and society, employees are worried, and in some cases rightly so.” But he said that even as leaders struggle with reconstituting “the office” and their operations post-Covid, the most important thing they must do is regenerate teams—and the sense of teamwork—within their organizations. Lencioni laid out three important steps to doing so: “Get the right people on the bus.” In addition to your company’s core values, Lencioni said, consider these three as “shorthand for who you want to hire”: humility, hunger and smarts. “If even one of these is missing,” he said, “you are in trouble.” “Hire people who are not ego-focused, but team-focused,” he said. And if someone is lacking humility, “don’t hire them.” “Hire people who are hungry. They’re hard to find,” Lencioni said. “That doesn’t mean workaholism but it doesn’t mean minimalism either. They want to keep going. Excellence to them is never quite finished. “Hire people who are smart—not intellectually smart” necessarily, he said, “but smart about people. They just understand. And when they’re in a meeting, they know how what they say, or how they act, will influence others.” It means displaying “common sense around human beings.” Locating and hiring such people, Lencioni said, requires “not hiring for skills and hiring for attitude instead.” Get out from behind the interview desk and “take them shopping for under-

wear for your kids,” he quipped, “or take them to your kids’ soccer practice and have them organize the cones for a drill.” Such experiences will expose applicants’ “natural” behavior. “Put people in the right seats.” Lencioni identified six types of what he calls “working genius” that can help leaders utilize employees effectively based on their gifts. He identified them by the acronym WIDGET. “W” is for wonder. “People aren’t usually rewarded for it,” he said. People with it “love to contemplate things, to speculate, to ponder: Why are things this way? Are our customers really happy?” “I” is for invention. It’s a genius of people who “love to come up with new ideas and novel approaches.” “D” is for discernment. “They have a good gut. They’re good at evaluating and assessing things.” “G” is galvanizing. These geniuses “love to get people excited and rally them.” “E” is enablement. Practitioners say, “I know what you need—I’m ready to go. They respond to what’s called upon, and people just think they’re nice—but it’s a genius.” “T” is tenacity. “They like to finish things and don’t rest until the impact has been had. If there’s a project that isn’t finishable, they get frustrated.” Using WIDGET to identify various forms of genius can help companies prevent losing people “because we’re not using them correctly,” Lencioni said. “Trust one another.” This pursuit is “not about predicting each other’s behavior” but, rather, promotes “vulnerability-based trust. You need to be raw and open. That changes everything. And the leader needs to go first.”

CEG’s Dan Bigman interviewing author and Table Group founder Patrick Lencioni

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TAKE PRACTICAL STEPS TO PRIORITIZE GREG BRENNEMAN HAS been a lifetime corporate-turnaround artist—for example, leading a failing Continental Airlines to an abrupt reversal of course in the 2000s with Chairman Gordon Bethune—and lately a consultant as well as author of Right Away & All at Once, a guide for business leaders who want what he called “a pathway to purpose and meaning.” Brenneman told the conference that thinking and planning are key to making a leader’s life matter in business, and personally, and for setting priorities. For CEOs, he recommended five steps for overcoming “underperforming” in leadership: Have a plan, track your progress: For example: Stop doing things to lose money. At Continental, he said, one such

step was to cut out largely unsubscribed flights and assign smaller planes to other less-traveled routes. “Sometimes we overcomplicate stuff,” he said. Build a fortress balance sheet: “Make sure your balance sheet is in pristine shape,” he said. “There will be tougher times” ahead. The economy “may be going back to Jimmy Carter time. There will be inflation.” Think money in, not money out: When he was CEO of Burger King, for instance, Brenneman focused on “superfans”: young men who would eat at the fast-feeder up to five times a week. “We came up with the Enormous Omelette sandwich and Triple Whoppers, as well as advertising with the ‘King’ head” for Burger King’s mascot. “Moms thought he was creepy, but superfans loved that stuff.” Build your team: Decide dispassionately whom you need to execute your plan. In a poorly performing company, he said, you’re going to have to “exit some people and bring in people who can help you.” Let the inmates run the asylum: Meaning, he said, to empower, motivate and encourage employees to make decisions consistent with your plan.

CREATE FEEL-IT MOMENTS WITH YOUR TEAM DON YAEGER IS AN AWARD-WINNING SPORTS journalist and author and a contributor to Chief Executive (see cover story, p. 30), and he’s covered many of the most glorious athletic teams of the past few decades, studying what made them great. He focused on the U.S. Olympic men’s basketball team and how Coach Mike Krzyzewski picked them up after a version of the “Dream Team” sputtered to only a bronze medal in the 2004 Games. Key to the team’s subsequent revival, Yaeger said, was how “Coach K” applied his own patriotism and background as a West Point graduate to help generate proper appreciation by the American team’s players of how they were representing their country on the global stage—and how their “sacrifice” compared with much deeper sacrifices by members of the U.S. military. Krzyzewski’s tactics included taking subsequent Olympics teams to visit U.S. troops serving in South Korea, to his stomping grounds at West Point, and to Arlington National Cemetery. The coach also issued USA Basketball dog tags to each player.

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“He encouraged them, over the next year, if they encountered military members, to go learn their story, and at the end of the conversation, to ask if they could swap dog tags,” Yaeger recalled. U.S. Olympics men’s basketball resumed its winning ways. But each thing Coach K did was part of creating what Yaeger called “feel-it moments” that any leader can use to rally passion and togetherness in a team.

HEED BAKED-IN ECONOMIC TRENDS THE ECONOMY WILL DECELERATE but glide along pretty well for a few years. A recession is coming in 2026, followed by a recovery—and then a global depression. That’s what Alan Beaulieu’s crystal ball says, and his ITR Economics firm has been consistently right in predicting trends for decades. Everything is baked in already, Beaulieu said, but here are some things you can do to zig and zag in the right ways and at the right times. Bet on better logistics: The supply-chain debacle of 2021 “will get fixed as we move through 2022,” though the microchip shortage will keep many manufacturers on edge until the second half. Don’t worry about politics: Economic growth is little affected by which party rules Washington, he insisted. Even the prospective higher taxes that have been on the table under the current Democratic regime “won’t change our forecast.” Play inflation correctly: Despite the fall report of inflation at a 39-year high, it “will calm down now” and “begin to dissipate, but not down to 2019 levels.” Then inflation will pick up again over the next several years, he said, to 6 percent to 8 percent by the end of the decade. The unprecedented government-spending boom will guarantee rising interest rates too. “You can manage just fine if you’re ready. Raise prices as often as you can,” relying on “competitive advantage” rather than citing cost recovery. Save cash: Stockpile it now “for when rates are high and you want to buy something. Right now, think about acquisitions, improving labor efficiency if you’re a service business, spend on CRM and other processes.

Then pay it off by the end of the decade.” Wait to sell your company: The torrid M&A activity of 2021 will slow down into 2022, he said, so “you may want to wait to sell your company until 2025, maybe 2024.” And don’t include an earn-out: “You’ll get less cash up front, but that’s OK, because you’re not going to be able to earn it in an earn-out anyway.” The next good time to sell won’t be until near the end of the decade. Lean into America: The rising cost of Chinese manufacturing labor and general supply-chain resilience favor American manufacturing. “U.S.-centric firms will have more opportunities going into the future.” Automate like heck: Even the surge in immigration won’t fill all the jobs that still go begging in America. “We’re in a bidding war for talent that will go on a long time,” he said. So, do all the automation you can.” Brace for 2030: The depression will be “caused by aging demographics around the world” and interest payments on unprecedented government debt. “It will be a lost decade,” Beaulieu said. “It will be a painful decade.”

AVOID TRAPS IN NEGOTIATIONS VICTORIA MEDVEC IS an impresario of high-stakes negotiations and a management professor at Northwestern University. She shared four big traps that senior leaders should avoid. “People who negotiate all the time run into these traps specifically because they do [negotiations] all the time,” she said. Don’t negotiate the wrong deal: Put the right issues on the table, Medvec said, based on the objectives of your negotiation, both short and long term. “For each one, have at least one negotiable issue.” Don’t negotiate a single issue because “it will be contentious and damage the relationship.”

Don’t sell yourself short: Experts often “don’t set ambitious goals,” she said, because they expect “what people normally get.” So aim for more based on the weakness of the other side’s positions, not on deal averages. Tell the right story: “How can your differentiators address the other side’s pressing business needs?” is how Medvec put it. And make certain your story “isn’t about the benefits of buying your business” but about “how to solve their problems.” Make multiple offers: Come to the table with not one but perhaps three different but essentially equivalent offers. “That sparks conversation and gives them choice,” she said. “People love choice. They feel they’re in control, but who’s really in control? You are, because you’ve designed the choices they have.” CE

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C EO O F THE YE AR

CELEBRATING MERCK’S

KEN FRAZIER NOTHING—NOT COVID, not a nor’easter— could stop a who’s who of the nation’s chief executives from meeting last October at the Nasdaq Marketsite in Times Square to honor 2021 CEO of the Year Ken Frazier. Presenting the award, our 2020 CEO of the Year, Bank of America’s Brian Moynihan, said he believed “to his core” that the job of CEO was to deliver for shareholders and society, and he knew of no leader who did this as well as Merck’s Frazier. “Ken, we listen to you,” he said. “Thank you for all you do.” Frazier said there is still much work ahead to bring opportunity to more Americans of all backgrounds—and CEOs have an outsized role to play in doing so. “People may want to believe that we live in a color-blind society,” said Frazier. “But we do not. We have customs, beliefs, practices and policies that lead to inequity. Companies like ours should take on the mission to address these problems. It is the right thing to do for the world, and for business... All of us benefit when we bring more opportunity to those who haven’t had it.” —Dan Bigman Event photos by Ben Hider

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Ken Frazier with former Merck Chief Executive Roy Vagelos, 1992 CEO of the Year.

A Times Square celebration.

Ken Frazier celebrates with new Merck CEO Robert Davis (second from left), colleagues and family.

AlixPartners’ Simon Freakley and Ted Billilies.

Bank of America’s Brian Moynihan, our 2020 CEO of the Year, presents Frazier with this year’s award.

Frazier with son James and his wife, Andrea.

Frazier with SHRM CEO Johnny Taylor and AmerisourceBergen CEO Steven Collis.

Nasdaq President Nelson Griggs kicks off the evening by welcoming guests to the Marketsite.

Fmr. Stanley CEO John Lundgren, Yale’s Jeff Sonnenfeld, CEG’s Wayne Cooper, Schnitzer Steel’s Tamara Lundgren, Bain’s Manny Maceda.

A nor’easter passes through New York just in time for guests to enjoy the evening outdoors.

Frazier and Moynihan take questions from the audience and Chief Executive Group’s Dan Bigman, left and AlixPartners’ Ted Bililies, who serves as an advisor to the CEO of the Year Committee.

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C EO ROU NDTAB LE

THE NEW ART OF DECISION-MAKING Inundated with information, pressed for time and surrounded by risk—leaders weigh in on the challenges of making judgment calls in a time of crisis. BY C.J. PRINCE

CEOS ARE LEADING IN A TIME OF constant transformation and relentless

The first line of defense in risk-taking is decision-making by the leaders.” —Manny Maceda, Bain & Co.

pressure, facing unending streams of decisions that must be made—at lightning speed, with imperfect information. At the same time, they must manage the risks those decisions pose to their companies and ensure that leaders lower down in the organization are armed with the data needed to take smart risks, avoid wrong decisions and, if necessary, fail quickly. That’s a harder task than ever in the climate of remote work, where some employees have yet to step into the office for the first time, agreed CEOs gathered for a roundtable discussion cosponsored by PURE Group of Insurance Companies. “You have a whole generation of people who are coming into the firm who haven’t been inculcated in the values of the firm,” said Manny Maceda, worldwide managing partner for Bain & Co. “The first line of defense in risk-taking is decision-making by the leaders. We can put in all the risk management processes—and we do—but often, the frontline decisions, particularly

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for us as a service industry, require people with a set of values, who have some ability to make tradeoffs.” That’s because while availability of data can give decision-makers better footing, it can’t replace knowledge born of experience. “That’s part of the issue,” said Ross Buchmueller, group president and CEO of PURE. “We think about how we use data to inform decision-making, but we also use our experiences. And when [employees] don’t have a lot of experiences, you’ve got to really have a good infrastructure.” Newer employees who have not had a chance to learn at the feet of veterans might be lacking the kind of institutional knowledge needed to take calculated risks while not repeating past mistakes, said Bank of America CEO Brian Moynihan. “There’s nobody really much under the age of 35 or 40 who knows what happened in the financial crisis. And now you’re seeing home prices go up again, and you’re thinking, do people recognize the same issues? Especially now that you have three years of college kids coming

in who have never seen a boss.” There’s also only so much you can do on Zoom, Maceda added. “It’s more efficient, and it’s a better carbon footprint for those who air travel as a meaningful portion. But does it train an entire generation to make good choices, which is always going to be the frontline for risk management? I don’t think it’s sufficient.” The fact that employees have not had a chance to work side-by-side is also problematic, said Simon Freakley, CEO of AlixPartners. “Best performance is actually well-performing teams, not just well-performing individuals. And what makes well-performing teams is people working in team rooms together, actually learning from one another, because it’s somewhat of an apprenticeship model,” he said. “When our people make terrible decisions, and hopefully it’s not that often, but it’s usually when they’re on their own. When you’re dealing with a knotty problem, sitting around in person creates an energy and a discussion that is helpful.” Despite its limitations, the technology has been helpful for newly minted CEOs who would otherwise have an impossible time communicating culture during a pandemic. Christine Miller stepped into the top job at Melinta Therapeutics in August 2020. “I used Zoom as an opportunity to get to know people. I was able to reach very deeply into the organization, and a big focus that I had was really around understanding the culture of the organization.” What did she discover? “There was no culture. The previous leaders had done acquisitions but had not intentionally integrated the cultures or set forth what it should be.” Without that, employees would have no foundation for savvy decision-making. So Miller spent much of her time initially working on establishing culture, and then it all came back to team creation. “It’s just not good enough to bring in people who know what to do—they have to be able to work together as a team. So I have an advisory group that works with us to provide coaching for my executive team, because leading

an organization through a transformation is much different than a startup company— you still have some of the old ghosts from the past.” For Robert Davis, who became Merck’s new CEO in July following Ken Frazier’s retirement, teamwork will be the key to innovation. “That’s the big thing I’m trying to drive—one Merck, one team, unified behind the purpose. And as long as we put the patient at the center, we understand what we’re focused on and driving toward.” Getting boards behind tough decisions When Bank of America made the decision in 2014 to settle with the Justice Department to end litigation that had plagued

the bank since the end of the financial crisis, the board ultimately supported it, said Moynihan. “But the trick was getting the board to understand all the facts and nuances” to get to an agreement. That can be challenging when a crisis hits, and the source of that crisis isn’t necessarily in the wheelhouse of the board’s collective skills, said Freakley. “So these are complex issues where many of your board members have no experience… And particularly when it’s around a big legal issue, to bring the board’s understanding up to a point where they can have a view is a real challenge. And you don’t have a lot of time.” “That’s why you have to have CEOs” on the board, said Moynihan, “because they have faced that kind of ‘the buck doesn’t stop anyplace but right here’ [and] have

Bank of America’s Brian Moynihan, PURE Group’s Ross Buchmueller and Merck’s Robert Davis

CEO MAGAZINE / WINTER 2022 / 65

It’s just not good enough to bring in people who know what to do—they have to be able to work together as a team.” —Christine Miller, Melinta Therapeutics

Best performance is actually well-performing teams, not just well-performing individuals.” —Simon Freakley, AlixPartners

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had to make those decisions, whether it’s a decision to sell or to buy or to settle a case. They understand the process—you have to make a decision, and you have to make a decision that no one else is going to be able to help you make.” That’s one of the reasons Neil McFarlane, when he took over as CEO of Adamas Pharmaceuticals in 2019, brought in a new board member who had been the general counsel of a large multinational biopharma. Adamas was dealing with six ongoing lawsuits at the time. “I needed somebody on that board who had been through the wringer…[and] could actually help explain some of the decisions that were coming [down],” he said. He also spent considerable time with every member of the board. “I wanted to make sure these were the kinds of people who were going to be there for me, who I could learn from, who were interested in change.” McFarlane pointed out that when making decisions about settling litigation, CEOs have to factor in the time it will take to win the lawsuit, as well as the uncertainty in the market during that time. “[It] was really stopping people in that mid-cap area from taking a flyer on a great product that made a tremendous difference in the lives of patients,” he said. “That uncertainty was a killer.” Freakley noted that stakeholders also don’t respond well to uncertainty around issues like social justice, racial equality, environmental issues, etc., and that CEOs have to be prepared to react decisively. “We can’t wait for our internal comms people or our PR agents to be drafting stuff for us,” he said. “Chief executives have to be their own chief communication officers.” Finding future leaders Making tough decisions during a crisis can be painful but will also usually reveal your star talent, said Steven Collis, chairman, president and CEO of AmerisourceBergen. “That is where you learn what people are made of. It is a fascinating time to watch the decision quality.” He recalled that several executives were due to retire during the pandemic, requiring some leadership restructuring. “Some of the people who performed well in this crisis got to the management table because of it, and they’re fantastic leaders,” he said. “People say crisis makes character—I think it reveals character.” Moynihan agreed. During the shutdown and economic crisis brought on by the global pandemic, Bank of America employees and executives had to work around the clock—including on Easter Sunday—to get PPP loans done. “That quickly sorts the energy takers from the energy givers. And it quickly sorts of people who will make decisions when they have to.” Disruption does create opportunity, said Miller. “It’s just having that mindset for you to look for it. My dad always says, ‘Don’t waste a good crisis’ because there’s definitely a good opportunity, and you have to have people who are level-headed and solution-oriented. You will have people who will create spin and drama, and you don’t need those people in leadership roles. But if you can get people to stay level-headed and look for the upside opportunity, you’ll benefit from it.” CE

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P L A N E ADVANTAG E

NAVIGATING THE JET RESET

At a time when planes and pilots are scarce, knowing the ins and outs of your private aviation options is critical. A primer. BY DALE BUSS

TOP: Chartering, jet cards, fractional ownership—volume of use is a good starting point to determine which is best for your needs.

HIS MAY BE THE BEST of times for

private aviation because of the reopening of the economy, the rapid pace of wealth creation and the inability of airlines to satisfy an explosion in business-travel needs. But it’s the worst of times for actual flyers to get seats on airplanes they don’t own. Demand for charters, fractional ownership and jet cards has exploded to record levels as Covid waned—at a time when the supply of planes, pilots, flights and seats hasn’t nearly caught up. This gross imbalance ruined hopes for a smooth reascension of corporate aviation in the post-pandemic world. JetSuite filed for bankruptcy, while NetJets stopped selling new jet cards, helping create what’s been called “private-jet rage.” “It’s hard to understate how ticked-off NetJets clients must be, or that Sentient jet-card customer who is underwriting depreciation on one of their planes but not able to get a ride on one,” says Greg Raiff, CEO of Private Jet Services, a New York City-based provider of chartered aviation to rock bands, sports teams and corporations. With no slack capacity, the industry can’t cover flights cancelled when mechanical fixes are required. “I’ve never seen something marketed as so reliable and predictable take such

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a turn,” says Kyle Patel, executive director of charter provider BitLux. And there’s no salvation on the supply side for planes. Gulfstream Aerospace, one of the biggest manufacturers, delivered only 127 jets in 2020, for example—and that was down by 16 percent from 2019 deliveries. “But the good news is there are more options than ever before, both in terms of what the aircraft are and how to access them,” says Ed Bolen, president of the National Business Aviation Association. For CEOs, the challenge is navigating that ever-growing landscape of sharing options. Volume of use is a good filter. The rough rule of thumb is that if you fly up to 50 hours a year, chartering is the most cost-effective option. From around 100 to 150 hours, it’s fractional ownership. Above 200 or more hours, experts say, the economics favor owning your own craft. The main options: Chartering: It allows you to make use of a given plane for a specific trip without longterm commitments. Thousands of aircraft are available for charter. You don’t have to put up a large sum of money up front, and there are no ongoing monthly fees. But it can get very expensive; high-demand

times of year (such as spring breaks and winter holidays) may frustrate your plans; standards of service vary widely. Plus, of course, you’re ultimately at the mercy of others. Fractional: You’re paying for part ownership of a specific plane and will be allocated time on the aircraft. Typically, the commitment is five years with an opt-out after three. Some companies offer shares based on days of use rather than hours of use. But even in normal times, it may not be an immediate answer. “Most programs will pull you in, but right now they may not be able to put you on an airplane for three months as new planes come online,” says aviation lawyer David Norton. “They’ll interim-lease to you to bridge that gap.” Jet cards: There are “closed-fleet” or fractional jet cards that give you access to some of the latest and best-maintained aircraft, typically for blocks of 25 prepaid hours. Also, several companies offer “openfleet” or jet-charter cards, with their own aircraft or a fleet they manage. In typical times, jet-card holders can book with eight to 12 hours of notice on regular days. Lower capital outlay—typically $25,000 to up to $100,000 up front—is required, compared with full fractional ownership. But the cost per flight hour is relatively high. And you need to give more notice than a fractional-share owner does, so when capacity crises hit, as now, jet-card holders can be some of the most frustrated travelers on the tarmac. Here are some tips for navigating today’s challenging aviation-sharing options: Buy reputation. “Usually, I guide CEOs to five or six highly reputable companies that I know and say, ‘Why don’t you start here?’” says Craig Picken, managing partner of NorthStar Group aviation-executive search firm. “If you’re going to buy a jet card, for example, you’d better understand who you’re prepaying.” NetJets, for example, is owned by Berkshire Hathaway, while Jet Aviation is owned by General Dynamics. Major new charter entrants include Wheels Up, which had a boffo IPO in 2021 and has seen active membership grow to around 12,000.

Consider a broker. They can steer new customers through “self-serving mission analyses” proffered by sharing-options providers, says Mark Bloomer, cofounder of consultant JetTransactions, in Camarillo, California. “When we do those analyses, we’re a client-advocate company looking at what boxes this client fits into according to the mission.” New entrants should thoroughly analyze their case for sharing planes. “Get a true assessment of what your actual needs are— personally, not just professionally and for your clients,” says Glenn Gonzales, CEO of charter operator Jet It in Greensboro, North Carolina. Plan ahead—way ahead. The average booking time for a charter used to be about four hours, covering the time it took to recall a jet from somewhere, get it prepped and staffed, and have it available for takeoff again. Increasingly, that kind of instant availability is no more. So, set your schedule as far as possible in advance—up to a month. Seek local options. Smaller, regional and local charter operations may be able to provide good old-fashioned service and the edge that can come from personal relationships. “Go back to the old school and call charter operators, at least to supplement whatever other arrangements you have,” says Janine Iannarelli, president of the Par Avion aircraft brokerage in Houston. Beware the fine print. For example, in agreements for sharing options, indemnification clauses “can be weak and not in synch with the expectations of a company or its general counsel,” says Pawel Chudzicki, an aviation attorney. Sometimes, for instance, a provider’s insurance coverage is insufficient. Wait things out. “I don’t know when it will happen, but what goes up must come down,” Raiff says. “I see the demand spike going on at least [until mid-2022], but at some point, demand will hit a wall.” CE

Standards of service can vary widely among charter operators.

CEO MAGAZINE / WINTER 2022 / 69

2021-22

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L AST WOR D

JEFF POZEN \ CHIEF OF STAFF, JELMAR

DISRUPT YOURSELF

Is success making your company stagnant? Try looking at your business through a startup’s eyes.

AS A THIRD-GENERATION BUSINESS, our company has age, experience and legacy going for it. But we’ve realized that keeping things fresh is important—both for business and our employees. We need ways of thinking that keep us nimble. During a recent brainstorming session, we came up with the idea of looking at our company through the lens of a startup: If we received funding to start this business today, how would we spend the money? How would we look at our company differently? How would our conversations with direct reports change? What kinds of risks would we take, and how would we manage them? What we experienced with this exercise convinced us to dedicate regular times to answering the questions that came from this newly adopted brand of thinking. Why think like a new business?

Even the best leaders can become complacent and stuck in their routines. Both the people and ideas in mature businesses can easily grow stale—especially today. In 1958, the companies on the S&P 500 index stayed on the list for an average of 61 years. By 2011, the average was just 18 years. And between 2017 and 2027, the projected churn of these companies is expected to be more like 75 percent. Tenured businesses may not need to reinvent the wheel, but they do need to tend to it lest the business grind to a halt. A startup mindset enables big businesses to approach problems with new vigor. It feeds the desire to exercise creativity while coming up with solutions that solve problems—which is key to innovation. How can you see with startup eyes?

Jeff Pozen is chief of staff of Jelmar, a manufacturer of household and industrial cleaning products.

Here are some tips from my own company’s experience for leaders trying to make an old business run like new: 1. Commit to an experiment. Beginning a new mode of working can feel like a leap into the dark with more questions than answers: What if it goes wrong? Thinking

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about the process as an experiment can help you commit to it without gambling everything on its success. Set aside a period for your experiment. Within that period, pledge to consider fresh, forward-thinking ideas and to revisit “failed” ideas that could succeed under new conditions. Set an expectation that everyone should enter these experiments with an open mind that’s ready to learn from the results. 2. Be generous with your team. One of the major boons of startup thinking is that it can empower every level of your team. A mindset of fresh ideas sourced from throughout the company engages people far more effectively than hierarchical, conventional thinking. Help employees grow bolder by showing them that idea generation is part of your company culture. You might, for example, host a lunchtime learning series where team members can pitch and brainstorm ideas. At our company, we ask newly hired managers to imagine different scenarios that might come up in their roles. Then, we have them think through a startup lens to create solutions that will help them and their teams to better work through the scenarios. 3. Remember the snowball effect. The best way to get everyone involved is to convince a few advocates to enthusiastically buy into the process. Employees might be hesitant to voice their ideas at first. But once they realize that they can join the conversation without embarrassment, people will enjoy the approach. They’ll learn more in their working day, experience more variety and become more collaborative and creative with their colleagues. This all-inclusive attitude of openness and encouragement can help surface new conversations and ideas from the previously untapped resource of your employees. These solutions may elevate your company to a level of success you might not have reached without a startup mindset, reinvigorating your company—and even your industry—in the process. CE

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Winter 2022 Chief Executive Magazine

Articles inside

Law Brief \ Daniel Fisher

On Leadership \ Jeffrey Sonnenfeld