Briefings Issue 14

14

QUARTER TWO

VOLUME FOUR

N O.

Cheap Energy

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Boone Pickens’s Newest Plan

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The aim for Korn/Ferry Briefings is audacious, to provide great insights to help leaders lead.

Chief exeCutive offiCer Gary Burnison Chief marketing offiCer Michael Distefano editor-in-Chief Joel Kurtzman Creative direCtor Joannah Ralston CirCulation direCtor Jaye Cullen marketing manager Stacy Levyn ProJeCt manager Tiffany Sledzianowski web CommuniCations sPeCialist Edward McLaurin board of advisors Sergio Averbach

Stephen Bruyant-Langer Cheryl Buxton Dennis Carey Bob Damon Ana Dutra Joe Griesedieck

Not by telling them what to think — but what to think about.

Contributing editors Chris Bergonzi

David Berreby Lawrence M. Fisher Victoria Griffith Dana Landis

Robert Hallagan Katie Lahey Robert McNabb Byrne Mulrooney Indranil Roy Jane Stevenson Anthony Vardy Stephanie Mitchell P.J. O’Rourke Glenn Rifkin Stephen J. Trachtenberg Adrian Wooldridge

ISSN 1949-8365 Copyright 2013, Korn/Ferry International Requests for additional copies should be sent directly to: Briefings Magazine 1900 Avenue of the Stars, Suite 2600 Los Angeles, CA 90067 briefings@kornferry.com Advertising Sales Representatives: Jeff Miller Jack Miller Office: 972-985-4023 Office: 972-985-4024 Mobile: 214-632-1549 Mobile: 214-707-1334 Fax: 972-985-4047 Fax: 972-985-4047 Email: jack@mgroupinc.net Email: jeff@mgroupinc.net 4975 Preston Park Blvd., Suite 785, Plano, TX 75093 Circulation customer service phone: +1(310) 556-8585 For reprints, contact Tiffany Sledzianowski at +1(310) 226-6336.

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Seven Seven perfect perfect scores. scores.

Three Three perfect perfect expressions. expressions.

One One extraordinary extraordinary achievement. achievement.

La Muse La Muse T h e WT ihnee W A idnveo A cd AT ve o c ATe

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PierrePierre Seillan—the Seillan—the celebrated celebrated French French vigneron vigneron at Vérité at Vérité who today who today makesmakes Sonoma Sonoma his home— his home— blushes blushes with gratification with gratification when when reflecting reflecting on anon historic an historic and unprecedented and unprecedented accomplishment. accomplishment.

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by Robert

by Robert Parker, Parker, Jr. of Jr. The of Wine The Wine Advocate, Advocate, these these accolades accolades recognize recognize Pierre’s Pierre’s philosophy philosophy on farming, on farming, winemaking winemaking and blending and blending that make that make Vérité Vérité wines wines unique. unique.

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© 2013 Vérité. © 2013 AllVérité. rightsAll reserVed. rights reserVed.

Q2.2013 4 letter from the ceo

24

14 boone pickens’s newest plan

At 84, Pickens has one goal: change the world.

latest thinking

BY joel kurtzman

6 to be or not to be strategic The role of H.R. is evolving.

24 i t’s better at the top

The more senior your job, the less stress you have.

BY glenn rifkin

8 growth now: focus on minds, not markets Talent is the real engine of growth.

32 t otal recall

Memory is malleable and depends on mood.

BY david berreby

11 overplaying your strengths Hidden weaknesses derail leaders.

38 t he purpose of strategy is to win

In Review

Some executives just want to play, when their goal should be winning.

BY michael distefano and joel kurtzman

70 “the pause principle”

Parting Thoughts 72 w e’ve seen it all before Bad behavior in government is nothing new.

BY joel kurtzman

46 j oichi ito — a renegade in the lab

To stay at the cutting edge, MIT went out of its academic comfort zone and hired a leader for its Media Lab who never finished college.

BY lawrence m. fisher

54 calling on a steady hand Franco Bernabè is leading Telecom Italia at a time

38

of globalization and rapid change.

BY timothy hindle

Governance 6 0 b uilding boards that perform

Best practices in the boardroom start with real independence.

BY robert e. hallagan and dennis carey

65 t he boardroom collides with the digital age The world has gone digital; governance must too.

BY mina gouran

65

54

A fascinating encounter The tenth Pen of the Year features a combination of two materials that could hardly be more complete opposites: The deep structure of ancient wetland oak, whose beauty has been naturally wrought over thousands of years together with gold that lends a supernatural sheen to the most beautiful works of art created by mankind. All metal fittings are 24-carat gold-plated.

A. W. Faber-Castell Vertrieb GmbH • 90546 Stein • Germany • www.Graf-von-Faber-Castell.com

From the CEO

by gary burnison

The Message Is the Messenger Consider a new CEO, tasked with turning around an industry laggard, who took to the podium at his first town hall meeting, with a command-and-control style that showed that there was a new sheriff in town and things were going to change.

With hundreds of employees in the audience, the CEO began speaking. Suddenly, he noticed a man in the corner of the room leaning against the wall, not paying attention to the presentation. Furthermore, the man wasn’t dressed like the rest of the audience; he was in jeans and a ragged T-shirt, with a baseball cap on sideways. Here was a perfect example, the CEO thought, to show employees that such laxity was no longer going to be permitted.

“You in the corner,” the CEO yelled out. “How much do you make a week?”

Looking up in surprise, the guy replied that he made about $400 a week. With a smirk, the CEO reached into his pocket and pulled out $1,000 in cash. “You’re fired!” he said. As the man in the baseball cap took the money, the CEO noticed a funny grin on his face, but he ignored it.

After his speech, the CEO called one of his lieutenants over. “So, how do you think I did?” he asked. “I sure made an example of that guy. By the way, who was he?”

“That was Johnny, the pizza delivery guy.”

Moral of the story and cardinal rule No. 1 in communicating: Before you speak, know your audience.

At its best, communication does more than inform. It inspires and moves us to consider what we might become if we, too, were “more” — more determined, more prepared, more confident and more empowered.

During the recent holiday season, I had the joy of entertaining five of my teenagers over a 10-day period. My role: provider of transportation, purveyor of snacks and procurer of incidentals. On the condition that they had to “check” their “i-Gadgets” in the car, I took my motley crew and their friends to see “The Hobbit.” At the end of this

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nearly three-hour film, everyone in the theater immediately began clapping — viewers were cheering at a blank screen. Why? Because they connected emotionally with the story.

Think of the movie “Rocky,” a fictional rags-to-riches tale of an unknown boxer who suddenly gets a shot at the world heavyweight championship. Even though Rocky loses the fight in a split decision by the judges after 15 punishing rounds, he is the champion for whom the audience always cheers. (The movie went on to win three Oscars, including Best Picture.) Even today, the iconic image of Rocky running up the steps of the Philadelphia Museum of Art and pumping his fists in the air evokes the heart-pumping determination of a character who was incapable of empowerment until he believed in himself.

To connect with others, to inspire others through communication, you don’t have to be Rocky or, for that matter, Ernest Hemingway or George Clooney. You don’t have to spin tales of how others accomplished the seemingly impossible. But you must be authentic, particularly in times like these.

Returning from the holidays, it is always refreshing to sense the overwhelming renewed hope at the start of a new year — employees return to work optimistic, even when there’s no rational reason for it. When we walked through the doors in the first week of January 2013, society faced the same issues it did in December 2012.

The world’s central banks continue to dole out money as if it were candy, unemployment rates in most of the world remain high, and companies continue to ask fewer workers to do more for less. With the exception of the

Korn/Ferry

David Strick

recent silver lining in China — where growth is hopefully accelerating — most workers probably feel as if they have been riding a stationary bike for the past four years, pedaling faster and faster, yet not advancing.

No matter. We arrive at our workplaces in the first week of January filled with more enthusiasm than we had 10 days before. Why? Hope and human nature have entered the picture. We want to be inspired. We want to be optimistic. We want to grow, learn and be developed. And we want to be part of something bigger than ourselves.

Leadership is all about creating this once-a-year feeling every day — regardless of whether the team is winning or losing.

Leaders listen, learn and then lead. They anticipate, navigate and communicate. In good times, team members look to the leader for guidance and praise, and in difficult times they turn to the leader for assurance.

Communication informs, persuades, guides and assures, as well as inspires. Leaders communicate frequently, with passion, through stories that connect emotionally with others.

Leaders listen, rather than simply hearing; they speak, rather than just talking. Leaders inquire, not question; before they speak, they observe. Leaders reveal more of themselves, allowing others to see their soul.

The actions of leaders are ultimately more lasting than their words. In fact, more important than what they say is how they say it. The role of the leader is much more than merely relaying information contained in tables, charts and slides; it’s about being the message.

There are no better examples of “being the message” than T. Boone Pickens, the legendary oilman, corporate raider, alternative energy pioneer and hedge fund manager, or A.G. Lafley, former chairman and chief executive of Procter & Gamble. Both are highlighted in this issue of Korn/Ferry Briefings on Talent & Leadership. As you will read, Pickens is a man who can tell a good story and, at a vibrant and fit 84, he’s done it more than once. Lafley discusses strategy — during his 10 years leading P&G, the company added $100 billion in shareholder value.

In Briefings, Korn/Ferry shows how companies can grow faster by focusing on developing executives first, markets second. Because stress is inextricably linked to these times, we decided to tackle it. Whether it comes from sprinting for a plane or from running in place in this listless economy, staffers are fatigued, which drags down morale. Research not only shows there are ways to cope with stress, but also indicates that leaders at the top

Briefings on Talent & Leadership

of an organization are often far less stressed than the workers reporting to them. This insight sheds light on better ways to lead, and it illustrates why it is important for bosses to listen and to empathize with those they lead.

Also, one of our regular contributors, David Berreby, takes a look at the way humans remember events and discusses what researchers are now coming to realize — while our brains do compute, we are not computers. Our memories tend to be changeable, and how we feel today determines to a certain extent the way we recall what happened yesterday. Finally, Briefings takes a look at MIT’s Media Lab, one of the most creative places on earth. In choosing its new leader, MIT went beyond its academic comfort zone and hired Joichi Ito, a brilliant, iconoclastic, venture capital investor and technologist who never finished college. Ito is a global citizen. He was born in Japan, grew up in Detroit and worked in Tokyo, Silicon Valley, Boston and Dubai.

We hope you enjoy this issue of Briefings, finding reasons to be hopeful and inspired — and bring that optimism and enthusiasm into the movie you’re living every day, so that 12 months from now you can say it was, indeed, a very good show.

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The Latest

T in ing To Be or Not To Be Strategic Is H.R. evolving as it needs to, or is it time for a new model?

F

or at least 15 years, it has been considered axiomatic that the management of human resources must be integrated into an organization’s overall strategy in order to meet the demands of a rapidly changing business environment. In their 2001 book, “The H.R. Scorecard: Linking People, Strategy, and Performance,” Brian Becker, Mark Huselid and David Ulrich encapsulated the rationale: “The evidence is unmistakable: H.R.’s emerging strategic potential hinges on the increasingly central role of intangible assets and intellectual capital in today’s economy.” Since then, changes in technology, demographics and globalization have only intensified the need for the human resources profession to raise its game.

“The expectations of the H.R. role have grown tremendously,” said Kim Shanahan, North American human resources practice leader for Korn/ Ferry International. “CEOs are put-

ting more pressure on the function.

Boards are spending a lot more time embedded in H.R. They are more heavily involved in talent, going one, two and sometimes three levels down in the organization.”

While the demand for a more mission-oriented approach to staffing and recruiting has grown, the supply seems to have lagged. In a recently published survey conducted by the University of Southern California’s Center for Effective Organizations, today’s human resources professionals reported spending no more time being a strategic partner than did the respondents to the initial survey in 1995. Edward Lawler, a USC professor and founder and director of the center, said the survey results “clearly show [that] being a strategic contributor demands high levels of business knowledge, information systems that have the right metrics and analytics, [and] organization designs and practices that link H.R. managers to business units. The results also show that H.R. is not doing what needs to be done.”

The generally accepted model for

how personnel departments could help shape corporate strategy was proposed by David Ulrich, a professor at the University of Michigan, in 1997. In the Ulrich model, human resources would operate on three levels: as a corporate-level partner that helps define strategy, as a consultant that helps line managers implement strategy, and as a skilled administrator that stewards company-wide services to support strategy. In theory, this would allow personnel departments to spend less time on administrative duties — perhaps outsourcing them entirely — and more time helping to steer the organization.

In practice, many organizations are falling short of that ideal, in large part because human resources professionals historically have not been required to possess the competencies and background necessary to have a say in corporate strategy. “It is still difficult to find the right kind of H.R. leadership — people who think about organizational capability in the aggregate,” said Emilie Petrone, senior client partner in human resources practice for Korn/Ferry International.

Smart Growth (n.) : The ability to grow the top and bottom line of a business in an extremely challenging business environment where demand conditions are weak and disruptive change is high.

Source: The Korn/Ferry Institute

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Hal Mayforth

SAY WHAT?

Korn/Ferry

Steven Guarnaccia

“The challenge for H.R. is to develop a critical mass of people who are up to the task.”

Ulrich thinks that personnel directors haven’t been quick enough to grasp the essentials of business management and that they compound that error by focusing on activity rather than outcomes. “You’re not measured by what you do but by what you deliver,” Ulrich has said.

Despite extensive efforts to measure what it delivers, the human resources profession has had some difficulty doing so. To be sure, it has no shortage of yardsticks — cost per hire, revenue per employee, turnover rates, compensation value added, among others. However, implicit in the tracking of these metrics is an assumption that they indicate a personnelrelated contribution to bottom-line outcomes like growth, competitive-

ness and profitability. While that assumption is intuitively reasonable, it is not dispositive, and it is met with skepticism by some non- H.R. executives. Many studies have examined this issue, but the results have been inconclusive.

“The bottom-line effects of strategic H.R. issues — such as CEO readiness, depth of bench and diversity of workforce — are real, but difficult to quantify,” said Petrone. “For instance, you can definitely correlate employee satisfaction to customer satisfaction, but how do you parse what part of that is due directly to H.R.?”

Some obstacles to strategic involvement lie outside a personnel department’s purview. Peter Cappelli, a professor at Wharton and the director of its Center for Human Resources, pointed to the changing focus of corporate strategy: “At least

Briefings on Talent & Leadership

[among] U.S. publicly held companies, most now have a financial strategy that drives the business. There is nothing like an overall business strategy, [so] the idea that the function of H.R. should be to help execute strategy has little meaning.”

Akiko Takahashi, executive vice president and chief personnel officer of Melco Crown Entertainment in Hong Kong, suggested that human resources departments can only be as important as the CEO allows: “For H.R. to be a strategic partner, it needs to report to a CEO who innately believes in human capital. [Human resources’] ability to influence has to come from the CEO’s authority.”

Perhaps the biggest obstacle to achieving “strategic H.R.,” however, is that no one inside or outside of human resources seems to agree on exactly what it means. Although no

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The Latest Thinking HAPPY ENTREPRENEUR, HAPPY COMPANY A recent survey of 3,000 high-impact entrepreneurs in 34 countries suggests that those in China, India, Kenya, New Zealand and the United States have the most positive overall opinions of the policies in place to promote their growth. The five countries surveyed with the most nega­ tive overall perceptions are Greece, Venezuela, Ukraine, Andorra and Poland.

Source: Monitor Group

one disputes that talent management, workforce productivity, leadership development and a highperformance culture are crucial to corporate performance, few agree about how, or even whether, personnel departments influence those factors. As a practical matter, some are suggesting that it’s time to back off the demand for strategy with a capital “S” and seek a more straightforward, results-oriented model.

“The way to become a business partner is to quit agonizing over being a business partner and trying to force unnecessary activity on the rest of the enterprise,” said Dan Bowling, former global head of human resources at Coca-Cola Enterprises.

“Focus instead on what is important.”

One alternative model that has gained some traction envisions human resources not as a single department trying to morph itself in multiple directions, but rather as competencies embedded companywide, sometimes as discrete job functions, but more often as distributed responsibilities in which every employee has a human resources component to their job. This model, in short, casts human resources as

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an almost intrinsic binding force in an increasingly specialized, far-flung and self-managed world.

Paul Buller, professor of management at Gonzaga University in Spokane, Wash., sees it this way: “H.R. needs to become an internal consultant and change agent to facilitate vertical and horizontal integration, so that everyone in the organization sees how what they are doing is connected to the big picture — a ‘line of sight’ that allows for continual adaptation. This would provide a unique source of competitive advantage that would be hard to imitate.”

Some predict that were human resources to become a more widely integrated competency, it would engender an osmotic permeability between H.R. and line management.

Eventually, the distinction between the two would vanish. Laurie Ruet­ timann, a recruiter, trainer and founder of HRM Today, a social network for human resources professionals, put it succinctly: “H.R. [will be] fixed when it ceases to be H.R. and starts to be a core and critical management responsibility. [H.R.] shouldn’t serve the business. We should be the business.”

Growth Now:

T

he nature of economic growth has changed. From the mid1990s to 2007, developing economies — especially those in Asia — experienced a period of growth unmatched in scale, optimism or speed.

This era can be characterized as one of “easy growth.” During this time, it became easier and cheaper to gain access to capital than in any other period in history, globalization created unprecedented admittance to new markets and consumers, and household consumer borrowing drove spending around the world. A gen­ eration of corporate leaders was shaped by this period, when growth was there for the taking; all they had to do was show up.

And now, suddenly, that era is over (see Figures 1 and 2), and we have entered the era of “smart growth,” in which growth is slow but change is fast. In his recent report, Smart Growth: Is Asia Ready?, Korn/Ferry leadership and talent consulting managing director Indronil Roy explained how this period of complexity and uncertainty — in markets, finance and currency — will require leaders to think and act differently to unearth growth where none is evident. Leaders’ shrewdness about growth will make a difference in corporate performance.

How long will smart-growth conditions persist? A resounding number of CEOs believe these conditions will last for the rest of the decade, if not longer, for myriad reasons. The global financial crisis led to a stricter regulatory regime that is (sometimes justifiably) constraining risk

Korn/Ferry

Focus on Minds, Not Markets taking. Regulatory pressure on the banking system in particular is reducing the risk capital available. Simultaneously, rapid reduction in consumer debt, stubborn unemployment and wage stagnation in the West continue to drive down consumer demand to a degree that can’t be offset by the rise in emergingmarket consumption. Increasingly focused on costs and their bottom lines, corporations are reducing investments. And, finally, the momentum of globalization has slowed, if not reversed. Some governments are reverting to a protectionist agenda and erecting higher trade barriers to satisfy domestic political pressures.

“My executive team is wired for easy growth,” one banking CEO in Asia explained. “In the 20 years that they have been in management roles, growth was a given. Even at the depths of the Lehman Brothers crisis, we knew that if we could just hold on to our basics long enough, the tide would turn. My team is still waiting for the tide.”

Like him, many CEOs are grappling with a vital question: How can we create growth where there appears to be none? Is there a combination of inventiveness, courage, wisdom and skills that can accomplish that?

As a first step, businesses must make a mental leap, moving away from the notion that growth exists in certain markets and toward the idea that growth emerges from certain leaders. In fact, it is increasingly hard to find markets that grow at a double-digit annual pace. Instead, organizations must look within for

Figure 1: GDP growth in emerging/developing economies

12% 11

China

10 9 India

8 7 6

Other Developing Countries

Middle East

5 4 3

Africa

Latin America

Central & Eastern Europe

2

Russia & Other CIS

1 0

Figure 2: GDP growth in developed economies

4%

Other Advanced

3 2

U.S.

1 EU-15

0 -1

Japan 19962005

20062011

2011

a leadership team that can carve out growth where others may see no hope. This view makes leadership more complicated and nuanced, but also more powerful: It holds that leaders, not market conditions, define the limits of growth.

But which leaders, exactly? Those who drove high performance in easy growth will not automatically excel

Briefings on Talent & Leadership

2012

20122016

20172025

in smart growth. In a recent study of leaders at 14 companies across Asia, Korn/Ferry found that two sets of characteristics indicate smart-growth readiness, or lack of it: leadership maturity and learning agility.

Leadership Maturity is an individual leader’s ability to operate effectively at high levels of complexity, ambiguity and scale. Korn/Ferry

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The Latest Thinking The shift in skill and mindset for growth leaders

Easy growth leadership

Business Growth

GDP/Market Growth

Smart growth leadership

Business Growth

GDP/Market Growth

• Leadership mindset: Growth is in the market • Leadership mindset: Growth is in the leaders Picking the right product — market strategies will Building leadership capacity is crucial give us growth for growth.

• Participate • Innovate Find the growth markets and get in as early as possible.

Create new demand and build new market spaces.

• Fuel • Sharpen

Feed growth engines with more resources and investment.

Build growth engines that are resource-efficient and lean.

• Good enough • Must Have Responsive to customer expediency, not insight.

Use deep customer insight to drive customer urgency.

• Specialize • Collaborate Get specialized teams to execute with expertise.

Get diverse teams to work together and create the new and different.

measures this with an assessment that examines the communication, decision-making and operating styles of executives. Think of maturity as the indicator of a seasoned executive, someone with experience in complex situations who handles challenges with grace. Given the shifts under way, maturity will be paramount.

Learning Agility is an individual leader’s ability to operate effectively amid disruption, speed and volatility.

This is measured with Korn/Ferry’s viaEdge assessment, which analyzes interpersonal skills, self-awareness, deftness with complexity and change, and the ability to deliver results in first-time situations. Think of agility as an indicator of a fast-learning executive, someone who knows what to do when he doesn’t know what to do. Given a fast-changing environment in the smart-growth era, agility will be the other differentiator among leaders.

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Taken together, these are the best factors for predicting smart-growth readiness. Both can be measured fairly and accurately, and benchmarked against leaders in the relevant industry and markets — pragmatic considerations if they are to be used in business. Both can be developed in individuals, giving organizations a way forward to enhance the competitiveness of their leadership teams.

The aggregate maturity and agility of a leadership talent pool point toward a company’s ability to drive growth rates over and above those of normal market participants. Broadly speaking, the ratio of those with high scores in maturity and agility to those with low scores reveals a business’s overall “smart-growth capacity.”

Korn/Ferry examined both head-tohead competitors and markets with multiple competitors and found that a higher group score means that organization is far more likely to have

a higher rate of top-line growth.

Businesses routinely talk about talent being their most important asset, but without a clear analytics and benchmarking platform to measure and value talent assets, that narrative often lacks conviction.

Korn/Ferry’s smart-growth research provides a new framework for investigating how leadership is linked to growth. It may provide the much-needed tools to ascertain the true value of leaders and leadership teams.

Investors, boards and stakeholders will continue to push management teams to quantify and benchmark talent assets to support evidencebased decision making, as they should.

Businesses that excel in this area of competence will see real advantage in the marketplace — to paraphrase Warren Buffett — as the others are left dangerously exposed by the retreating tide of growth.

Korn/Ferry

Overplaying Your Strengths The hidden weakness that derails leaders

Everett Peck

I

n a recent interview with The New York Times, James P. Hackett, the president and CEO of Steelcase, recalled a meeting in 1994 with J.W. “Bill” Marriott Jr., Marriott Corp.’s chairman of the board. Hackett was a young chief executive, 39 years old, seeking wisdom and guidance from the seasoned Marriott.

“I had been struggling with this notion of identity,” said Hackett.

“What does a CEO look like and feel like? As we were talking, I remember being struck by the look in [Marriott’s] eyes. I understood in that moment that he knew who he was. I remember this like it was yesterday.

Since then, the [CEOs] I’m most impressed with have [that same] sense of peace and self-awareness.”

Hackett’s intuitive observation is borne out by research. A multitude of studies have pointed to executive self-awareness as the bedrock of personal and corporate performance.

The work of influential psychologist Albert Bandura links self-awareness to self-efficacy, which he defines as a person’s perception of his or her own ability to succeed in specific situations. In general, Bandura contended, the more you know about yourself, the more likely you are to feel confident in taking things on and seeing them through.

According to Anthony K. Tjan, coauthor of “Heart, Smarts, Guts, and Luck”: “In my experience and in the research my coauthors and I did for our book, there is one quality that trumps all, evident in virtually every great entrepreneur, manager and

leader. That is self-awareness.

The conviction — and yes, often the ego — that founders and CEOs need for their vision makes them less than optimally wired for embracing vulnerabilities or leading with humility. This makes self-awareness that much more essential.”

In a recent Korn/Ferry International report, “Survival of the Most Self-aware,” author J. Evelyn Orr, director of intellectual property research and development, concluded that “when all things are equal, selfawareness is a key trait that explains why some business leaders succeed when others derail. Self-awareness is knowing your strengths and limitations, the willingness to seek and act on feedback, the ability to admit mistakes, and the tendency to reflect and apply personal insights.”

Unfortunately, most leaders fall short of that ideal. They have a distorted perception of themselves that can manifest itself in a number of ways: a tendency to overestimate skills or underestimate shortcomings (known as “blind spots”), or an inability to recognize an untapped capacity (known as a “hidden strength”). Based on feedback from more than 2,700 professionals, Orr’s report indicated that 79 percent had at least one blind spot and 40 percent had at least one hidden strength.

Lack of self-awareness takes its most insidious form, however, when leaders have an accurate sense of their talents, but routinely overuse or misapply them, turning them into

Briefings on Talent & Leadership

weaknesses. Research shows that high performers in all fields, especially when under stress, instinctively double down on the core attributes that made them high performers in the first place. Michael M. Lombardo and Robert W. Eichinger, cofounders of the talent management consultancy Lominger, were among the first to link this phenomenon to executive dysfunction in their book “Preventing Derailment: What to Do Before It’s Too Late.” They pointed out that poor executive performance is often not due to a weakness, but rather to a strength in overdrive: extreme confidence careening toward

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The Latest Thinking arrogance, detail orientation deteri­ orating into micro-management, forcefulness sliding into abusiveness, consensus-building degenerating into indecision.

This leader’s compulsion to overrely on strengths is more than just an occasional phenomenon. For many, it becomes habitual and ingrained — a default position. In fact, according to Drs. Robert and Joyce Hogan, leading thinkers in the area of personality assessment and organizational leadership, overused strengths constitute leaders’ most common flaw, and the most dangerous. The research, they say, draws a consistent conclusion: When leaders collapse, it is almost invariably the result of overplaying the characteristics that initially contributed to their success.

“Not only does overusing one’s strength corrupt and degrade its value,” said Robert E. Kaplan, coauthor of the new book, “Fear Your Strengths,” “but it begets weakness in yet another way. By embracing their strength as the only truth, these executives consequently ignore an equal and opposing strength. For instance, a leader who adopts an automatic and uncompromisingly forceful stance in all circumstances will be unlikely to be tuned in to enabling the efforts of others. The re-

sult is lopsided leadership: too much of one thing, made worse by too little of its complement. Versatile leadership arises only from acknowledging that each approach is a half-truth and from embracing both.”

Many leaders know this on an intuitive level, but they tend not to accept it in practice. In their careers, they have seen the efficacy of their strengths and have come to rely upon them heavily as a source of security.

When faced with the prospect that the very intensity that fueled their rise to the top can be sabotaging their effectiveness, they are often panic-stricken at the thought of needing to ease up. Not surprisingly, then, development efforts that focus solely on prescribing behavioral changes or counterbalances to overuse have limited success because they do not address the leader’s underlying mindset — the cognitive, emotional and motivational roots of the imbalance.

“A leader’s mindset will throw off his form just as an athlete’s does,” said Robert B. Kaiser, who coauthored “Fear Your Strengths” with Kaplan. “Correcting it is far more challenging than simply shoring up a deficiency. It requires intellectual honesty and the courage to rummage in the attic of your mind.” Unless the

leader’s mindset and behavior are explored in concert, he will not become aware of the self-defeating assumptions, impulses and emotional reactions that drive his excesses and will therefore not have the tools to modulate his behavior.

“Modulate” is the operative word.

Indeed, some in the field of leadership development are gravitating away from thinking in terms of absolute strengths and weaknesses.

“There is no such thing as an unqual­ ified strength,” wrote Morgan W. McCall Jr., a professor at the University of Southern California’s Marshall School of Business and an expert on the topics of executive development and derailment. “Any effective development strategy will have to acknowledge that what matters are combinations of strengths and weaknesses as they manifest themselves in specific situations.”

All behaviors, then, are seen objectively as competencies that have a wide spectrum of application — they are only potential strengths or potential weaknesses, depending upon the degree to which and the circumstances in which they are brought to bear. In other words, said author Kaplan, “There is no fixed setting on the dial for the proper use of a virtue.”

THE ENDANGERED SPECIES LIST: OFFICE EDITION According to professionals, the top 10 items and office trends that are becoming rare and could even disappear in the next five years are: Tape recorders (79%) Fax machines (71%) The Rolodex (58%) Standard working hours (57%) Desk phones (35%)

6. Desktop computers (34%) 7. Formal business attire like suits, ties, pantyhose, etc. (27%) 8. The corner office for managers/executives (21%) 9. Cubicles (19%) 10. USB thumb drives (17%)

Globally, professionals selected tablets (55%), cloud storage (54%), flexible working hours and smartphones (which tied at 52%) as office tools that are becoming more ubiquitous.

Source: LinkedIn

Hal Mayforth

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3.

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Korn/Ferry

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Boone Pickens’s

Newest Plan T. Boone Pickens, 84, doesn’t do anything halfway. Born in Oklahoma and raised in Texas, Pickens followed his father into the oil business. Pickens studied to become a geologist and started his career in the early 1950s, working for Phillips Petroleum. He soon learned working for Phillips — or anyone else, for that matter — didn’t fit his outsized personality and bold dreams. By the mid-‘50s, Pickens struck out to begin building what would become Mesa Petroleum.

In the 1960s, his company was growing fast — but not fast enough for Pickens. He began buying shares of another company, Hugoton Production, which was many multiples of his own company’s size. At first, the board at Hugoton did not take Pickens’s overtures seriously. But serious they were, and by decade’s end Pickens’s guppy had swallowed

Briefings on Talent & Leadership

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“I don’t want any money from the govern­ ment.

Industry will pay for it because it’s profit­ able all the way down the line.

And it’s cheaper than diesel.”

You have a plan to use natural gas in transportation for long-distance trucks and other heavy-duty vehicles. Who will pay for that?

PICKENS: For sure not the government. I don’t want any money from the government. Industry will pay for it because it’s profitable all the way down the line. And it’s a cheaper fuel than diesel.

We have a company called Clean Energy that provides it, and in 2013, a new 12-liter engine for heavy-duty trucks is coming out. That engine was the missing link. They already have 9.8- and a 15.2-liter engines, but 12 liters are optimum for natural gas.

Wouldn’t the big win be using natural gas in passenger cars?

PICKENS: Why? Because there are a lot of cars in the United States and they use a lot of fuel. And since a good share of American homes have natural gas piped in, people could fill their cars at home. And natural gas is a much cleaner fuel than gasoline. Don’t you think those are compelling reasons?

PICKENS: Yeah, no question. All of those are winners. But when it comes to home fueling you don’t use enough fuel to make it worthwhile. If you use 500 gallons a year and the device you put in your garage to fill your car costs $4,000, that’s a little bit expensive. And so, in my plan, that comes later when the equipment is better. I have one of those units in my garage.

Do you like it?

PICKENS: It worked fine, but I changed cars, so I

don’t use it.

Previous page: ©Zoonar/igor terekhov/AGE. This page: Associated Press. Opposite page: REUTERS/Tim Shaffer

Hugoton’s whale. Mesa was on its way to becoming one of the largest independent oil and gas companies in the United States.

After the acquisition, Pickens, like many another rich Texan, decided to enter the cattle business. He did it the Pickens way — acquiring a feeding and watering operation capable of handling 160,000 head of cattle at a time. “Small” is not a Pickens word.

In the 1970s and ‘80s, Pickens became a corporate raider, launching takeover battles for large companies, including Phillips Petroleum, where he had worked. He also made a run at Gulf Oil, Cities Service, Unocal, Newmont Mining and Diamond Shamrock. And while these companies got away, he was rewarded handsomely for his efforts. It is no surprise that the title of his autobiography is “The First Billion Is the Hardest: Reflections on a Life of Comebacks, and America’s Energy Future.” After a stint as an acquirer, Pickens started an investment firm.

Pickens has not been in it just for himself.

He is committed to the environment, investing hundreds of millions of dollars in wind energy and natural gas, publicizing it as “the Pickens Plan.” As a philanthropist, he has given away more than $600 million, with plans to give away more than $1 billion.

Pickens is not afraid to state his opinions.

What follows is an edited version of a conversation between T. Boone Pickens and Joel Kurtzman, editor-in-chief of Korn/Ferry Briefings on Talent & Leadership. The interview took place in Laguna Beach, Calif.

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PICKENS: There are already 1,500 stations in the United

States where you can get natural gas fuel.

Isn’t that a small percentage of filling stations?

PICKENS: That’s why I say, you press first to do heavy-duty

trucks. Once that’s accomplished, then you’ll start to see the whole thing come together.

Given how much natural gas we have in the U.S., why hasn’t it moved faster?

PICKENS: Because I’ve been a crummy salesman, and I’m the only one trying to sell it right now.

You certainly put it into people’s consciousness with your speeches, ads and editorials for the Pickens Plan.

Do you think people are paying attention now?

PICKENS: Yeah. But look, the only reason it’d happen and people would be using natural gas in their cars is if people made money off of it. Somebody’s got to make money or they don’t fill in their link in the chain, and it all breaks down. So my view is, if you’re going to do the whole country, all 250 mil-

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lion vehicles, it’d take you 10 years or longer. And you don’t do it by converting existing passenger vehicles to start with.

You do it with new cars — when you sell your car and buy a new one, you get one that uses natural gas.

What are the other steps?

PICKENS: My pitch to Obama was first, you announce that all federal government vehicles would run on domestic resources. They told me this point would be in the State of the Union speech. That way you leave it open to natural gas, electricity and batteries, and so on. I mean, we’re not trying to pick winners, but we are trying to use our own resources.

That’s what my pitch is. So the federal vehicles start us on the

learning curve about what’s the best fuel for our fleet. And that’s how you figure out how to do it. Then I said six months after that, you go back to the American people and say, “Look, the federal fleet mandate worked.” You might want to give some kind of tax credit for people to do it, but the idea is to keep it simple. So, the speech is, “We need to get on our own resources in this country, and as president of the United States, I’m going to come to you individually and hopefully

Associated Press

What about filling stations?

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you’ll follow my lead, so the next car you buy would be one that uses domestic resources.” That’s my pitch. And you could get families around the table and have them all talk about which kind of vehicle they think is best — batteries, natural gas, ethanol, all of them — and have each family member research it so when they went out to buy their next car, they’d be doing it together. It’d draw people together around this issue. But the bottom line is this: If you don’t pick a domestic energy source, it means you’re picking OPEC, because those are the only two choices.

You’ve been called a legend in the energy industry...

PICKENS: You know what the definition of a legend is, don’t you? It’s somebody who’s 75 years old and still has a job.

Point taken. But you really are a legend. You started one of the most successful independent oil companies, led some well-publicized takeovers, began a corporate governance movement, started a successful hedge fund, were a pioneer in wind energy, and now you’re focusing on natural gas. Sounds like a legend to me.

PICKENS: I even did some offshoots from wind. That cost me $150 million.

Why is that?

PICKENS: Only one reason. It’s oversupplied.

Why is there an oversupply now? Is it because of hydraulic fracturing technology, fracking?

PICKENS: Well, when it comes to fracking completions, the cost of wells is higher everywhere else in the world than the United States. It’s cheaper here than any place else, so you get more supply. We should take our hats off and thank the oil and gas industry in America. They’ve gotten us the cheapest energy in the world. But no one in government has the guts to say this industry’s done a pretty damn good job.

Do you subscribe to the idea that because of fracking there’s an energy revolution under way in the United States?

PICKENS: The simple answer is no. And, by the way, I saw fracking going on in Texas in the ‘50s. Look, the United States has always had natural gas. It’s always been there and it’s always been oversupplied. That’s why it’s never sold at parity with crude oil on a price basis. Parity would be a price of 6 to 1 against oil, given the energy it possesses for a given volume.

But I’ve never seen it better than 10 to 1, and today it’s 20 to 1.

Shutterstock

“What we’ve got is a situation in the U.S. where the superior end of the chain sells at a discount to the competition, which is crude oil.

Isn’t that something?”

Is it correct to say you don’t think wind energy is an opportunity right now?

Do you anticipate natural gas prices in the U.S. falling further?

PICKENS: That’s right. And do you know why wind doesn’t work?

PICKENS: Again no.

Why?

Why is that?

PICKENS: Because it’s priced off the margin, and the margin

is natural gas. So, if in the U.S., natural gas is trading at $6 a thousand cubic feet (MCF), that makes wind work. But if natural gas is at $4 a MCF, it kills wind. It’s that simple.

PICKENS: Simple. In the U.S., we’ve gone from 1,600 rigs drilling for natural gas down to 400. Natural gas production is in decline again in the United States — for a while, because of oversupply.

Natural gas in the U.S. has been trading at very low levels — as low as between $2 and $3 a MCF, recently.

So the rig count is down because of low prices resulting from oversupply?

PICKENS: Well, right now, we’re back up to $3.75 a MCF. And, when you look at what natural gas really is, it gets interest­ing. See, natural gas happens to be the superior end of the hydrocarbon chain for environmental and energy reasons.

It’s a pretty clean fuel, compared to all the others. So what we’ve got is a situation in the U.S. where the superior end of the chain sells at a discount to the competition, which is crude oil. Isn’t that something?

PICKENS: You got it. Like I said, when there’s that 6-to-1 parity with crude oil on a price basis there’s a lot of reason to drill.

Right now, at 20 to 1, there’s no reason to drill more wells.

I’ve seen the ratio as close as 10 to 1, when we had $100 oil and $10 natural gas. But there isn’t anybody today who’s predicting $10 natural gas. There’s nobody today even predicting $8 natural gas. They quit drilling because, at $3 a MCF for natural gas, nobody can make any money.

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At what price point will they roll out the rigs again?

PICKENS: When you have $5 natural gas, you’ll see activity.

When you have $6 natural gas, you will see full action. You know why all this is happening?

No, tell me.

two-thirds out of our trade deficit, which goes to purchasing foreign oil. And if you look at Australia and Canada — they’re both living off their own resources, producing their own oil and gas. And they’re doing just fine. But that’s not what the administration is doing.

PICKENS: O.K. I will. You know what mineral rights are?

There’s a lot of volatility in natural gas prices.

Is that normal?

The right to own what’s under the ground.

PICKENS: Sure. If you go back and look at natural gas prices, they’ve never been smoothed out or stable. They’re volatile.

You get into critical weather, draw down your storage for nat­ ural gas, and prices go up. You fill up your storage in the fill season, which starts in March and goes through October.

When you get your storage filled, prices come down. Natural gas is volatile. On the other hand, look at oil. Oil’s been pretty stable for the last two, three years, around $100.

PICKENS: Exactly. But did you know there’s only one place in

the world that has freehold mineral rights? It’s the United States. In the rest of the world, the government owns all the mineral rights. So ask yourself, what impact does the right to own mineral rights have? Because these rights are freehold and you and I can buy them, half of the 4 or 5 million wells drilled in the world have been drilled in the United States.

That’s because of our freehold mineral rights.

The International Energy Agency recently projected that the United States would become the world’s largest oil producer sometime around 2030, as a result of fracking shale oil. Do you see that happening?

PICKENS: No. Why is that?

PICKENS: I just don’t know where all that oil — more than 10 million barrels a day — is going to come from. I don’t see enough oil reservoirs available to us for that to happen. Now, to be honest, did I foresee what has taken place in the last 10 years with regard to production from oil source rock and shale? The answer is, no, I didn’t see that. And I don’t want to tell you I saw something coming if I didn’t. But I have seen a lot of things coming — and I’ve seen a lot of things going, too. And regarding oil, I just don’t see the U.S. becoming the world’s No. 1 producer. But, if you take all of North America together — Canada, the United States and Mexico — that’s a different story. If that group of countries works together, then yes, we can become energy and oil independent on a North American basis. But here’s the deal. If you were president, and you saw the United States had this kind of resource potential, and you looked around the world and saw how good countries look financially if they’re operating on their own energy resources, you just might think, “Hey, this is a real simple way to solve our country’s problems.” Right? Let’s just use our own energy resources. Just doing that would cut

Companies are planning roughly 85 new job-creating manufacturing projects in the U.S. worth at least $60 billion, due to low natural gas prices. Do you think that level of investment will continue if natural gas rises to, say, $5 a MCF?

PICKENS: Oh yeah. Even at $5, natural gas in the U.S. is the cheapest fuel in the world. If you look at natural gas prices today in Japan, they’re $16 to $18. In Beijing, they’re $15. In the Middle East, they’re $14, in Europe, $13, and in the U.K., they’re $10. Here, they’re under $4. Because of those prices, you’re going to have industries moving back to the United States because the fuel’s so cheap here. And it’s a better place to do business.

These new plants are expected to create tens of thousands of new jobs.

PICKENS: That’s why I say, you’d think that this administration would look at some of these things and say, “Gosh, we should hug up this industry, because the oil and gas industry is putting us back on our feet.”

What should the Obama administration do?

PICKENS: Get up and say we have the cheapest energy in the world and we’re going to support the industry because we want manufacturing to come back to the United States. It’s just good business. I’ve said it before, this administration, and almost all previous administrations, don’t understand our energy portfolio.

“I just don’t see the U.S. becoming the world’s No. 1 producer.

But, if you take all of North America together — Canada, the United States and Mexico — that’s a different story.”

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You’re a proponent of using natural gas for transportation. What happens if prices for natural gas rise?

PICKENS: Let’s say you use natural gas as a transportation fuel in trucks, and let’s say it is $4 a MCF. Now, if you compare diesel to natural gas on a gallon basis, if natural gas is selling at $4 a MCF, it would be the same as $2-a-gallon diesel fuel.

But diesel fuel sells for over $4 a gallon, so natural gas is a lot cheaper than diesel — about half the cost. Now, if natural gas went to $8 a MCF, it would be the same as diesel fuel selling for $2.50 a gallon. But since diesel is selling at $4 a gallon, natural gas is still $1.50 a gallon cheaper even at $8 a MCF.

Courtesy of Choice Environmental of Florida

You’ve been outspoken about the true cost in blood and treasury of defending Middle East oil. How dependent on the Middle East is the U.S.?

PICKENS: Do you know how many barrels a day come through the Straits of Hormuz?

No.

PICKENS: Then I’ll tell you — 17 million barrels a day. You know

how much of that comes to the United States? Only 2.25 million barrels a day. During the elections the president said, “I can tell you this. We’re going to get off of oil from the Middle

Briefings on Talent & Leadership

East.” Well, since we’re only getting 2.25 million barrels a day from the Middle East anyway, we can cover that with our domestic resources right now. That will give us the option to move the Fifth Fleet out, and our people out of the area.

We spent $1.5 trillion on the Iraqi and Afghan wars, and lost 7,000 of our people with 40,000 injured — and we use very little oil from the Middle East. So if I were running for president of the United States and you elected me, I would stop using oil from the Middle East. Completely.

What about OPEC?

PICKENS: Well, we’re importing 4.5 million barrels a day from OPEC. The part of OPEC we’re importing from includes Nigeria, Venezuela and Angola. If I were president, I’d move to get out of that, too. But I’d make getting out of the Middle East my first move so we can get our people out of the harm’s way. Like I said, we can do North American energy independence. Between Canada and Mexico, we’re getting about 5 million barrels a day of the roughly 9 million barrels a day we’re importing.

Some people are suggesting the U.S. should begin exporting natural gas. Is that wise?

PICKENS: I’m not big on exporting natural gas, but you have to give producers of natural gas an opportunity to sell their

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product into the best market for the best price. Getting into the export market requires liquefaction, and it requires transportation. When you add those costs in, you’re going to run up the price to $8 or $9 an MCF.

modities deals was Lehman. They owed me $2 billion, and I sat at the meeting and I said, “You know, probably the smart thing to do is let’s just call it all in and quit.” But we decided to wait a few more days, and it was disaster. Lehman never paid off. They owed me $300 million.

Isn’t that still cheaper than what people are paying anywhere else in the world?

But you’re still thinking intensely about the future and how to make tomorrow better than today, aren’t you?

develop demand in the United States than export natural gas. See, if you’re going to use natural gas for transportation in the U.S., and you’re serious about it and you want to go beyond using it just for heavy-duty trucks, you’d likely run up the price of natural gas to around $6 a MCF. So if you want to export and you add in the cost of liquefaction and transportation, you’re now talking about $11 natural gas.

Throughout your career, you’ve put a lot on the line — in business, even in politics, and with your plan. And, typical of entrepreneurial ventures, not everything worked. What’s your attitude about failure?

PICKENS: Everyone’s failed. I said in my book, “You

better not ever forget how to eat a hamburger because there will be days when you’re sure not going to be eating sirloin steak. You’re eating a hamburger and damn glad to have it.” So you’ll miss, and you’ll lose, and you’ll fail, but you’ve got to just get up and start grinding again. And some people can’t stand that. They can’t have had a period of success and then lose it. It drives them crazy to do it.

Is the ability to tolerate failure innate in people?

“You’ll miss, and you’ll lose, and you’ll fail, but you’ve got to just get up and start grinding again.”

PICKENS: Yeah, I think so, yeah. For instance, I’ve been up and I been down. I was up to $5 billion net worth, then I went back to $1.5 billion before you could say “Jack Robinson.” That was in 2009. I haven’t recovered from that yet. I’m still worth over $1 billion, but I haven’t been able to move the peg back up.

How did that feel personally?

PICKENS: It hurt. It stung, it really stung. I didn’t feel good at all. And I felt very stupid, too, at my age — I was 80 years old — that I would let it happen to me, with as much experience as I’d had. I mean, it didn’t exactly catch me by surprise, but I was sitting there, and the counterparty to me on some com-

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PICKENS: Hell yeah, but I’m getting

shorter-term.

How do you mean that?

PICKENS: The last really long-term deal I made was

I bought 156,000 acres of mineral rights in the Marcellus shale formation knowing full well that it was a 100-year play and it probably would not do much for 10 years. I knew that that was my last really long-term deal.

Is everything now short term?

PICKENS: Shorter term, but not short term.

Suppose a young person came up to you and said, “I want to be the next Boone Pickens, because you’ve been so successful in so many different areas.” What would you tell them?

PICKENS: It’s pretty simple. I’ve been asked the question many times. I said I consider myself to be an average person. Intelligence average, other skills average, so how do I get away from the crowd? How do I move out? One, develop a work ethic early, which I did. And two, get a good education. Now, you need to ask yourself, “What is it I want to accomplish?”

But you say you want to be me? Well, this is what I told a high school graduating class in Alexandria, Va. I said, “You’re sitting there and you’re getting tired of hearing me talk, but I’m going to make you an offer now.” And I said, “So listen very carefully to me.” And the class really listened.

And I said, “I will trade seats with any one of you. You get to be me. You get the ranch. You get the airplane. You get the bank account. You’re worth a lot of money,” and then I looked at them. “But the other part is I get to be you. I’m 18 years old, and I’m headed for college. Now you’re rich. And of course, we know we can’t do it. But I want to tell you how valuable your chair is. It’s a lot more valuable than my chair.” And so I said, “You have to do it, nobody can do it for you.”

Associated Press

PICKENS: Well, it is. But I would rather

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The Higher You Go, the Less Stress You Feel

By Glenn Rifkin

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Q2.2013

When the renowned Stanford neuroscientist Robert Sapolsky began to measure the impact of stress in baboon society in Africa — research that has continued more than three decades — he made an unexpected discovery. Baboons, which live in large, closely knit social groups, exhibited very clear hierarchical behaviors. Large dominant males sat at the top of the hierarchy, and those lower in the pecking order were constantly harassed and abused by those higher up. By measuring the cortisol, or stress hormone, levels in these baboons, Sapolsky determined that the higher the social rank in the group, the lower the stress levels in the baboon. Life at the top, it seemed, was pretty darn cushy for the top-banana baboon.

James Bennett

It’s Better at theTop

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School of Government at Harvard, included military officers and government officials. In testing these high-level leaders, it was discovered that, as with baboons, their cortisol levels decreased as they rose through the ranks.

As such studies are wont to do, these drew a widespread but fleeting media response. It made for a good raised-eyebrow moment but seemed to promise little response in corporate boardrooms. For aspiring leaders, however, the study set off a spark of interest and debate. If achieving the highest levels of leadership brings not only untold riches, vast power and influence, and in some cases, fame, could attaining a lofty perch bring less stress as well?

For members of the research team, the findings were provocative. James Gross, a Stanford psychology professor who specializes in research on regulating emotions, said that the

James Bennett

That’s all well and good if you live on a savanna and spend much of your day foraging for fruit, having sex with willing females and snoozing while your mate picks the nits out of your fur. But how does this relate to stress levels in human primates? From the earliest days of organizational behavior research, conventional wisdom presumed that the highestranking leaders like chief executives, generals and political leaders carried far more stress — that unwelcome byproduct of leadership. The higher you rose in an organization, the greater the demands, and with that came peptic ulcers and long, sleepless nights. Or so it was assumed.

But recently, a study released jointly by researchers at Harvard, Stanford and the University of California, San Diego, revealed that high-ranking leaders displayed lower levels of stress than nonleaders. The study, conducted at the Kennedy

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researchers were as surprised as anyone by the results. “We took a close look at leaders versus nonleaders and wondered if we not only asked them how stressed they were but looked at the physiology through salivary testing that measured cortisol levels, would we see differences?” Gross explained. “There was a very clear difference between the two groups. Leaders reported less stress than nonleaders.”

The results triggered a second study of 100 more leaders in an attempt to quantify the parameters. All leaders, after all,

this social intelligence, it is not only good for their careers but also for their health.”

The Whitehall Study In fact, the Harvard-Stanford-San Diego study may not be all that groundbreaking. It is not, for example, the first of its kind. The famous Whitehall Study in Britain, which began in 1967, measured health issues and the impact of organizational rank. The Whitehall Study did not focus specifically on

It isn’t as much about the sheer amount of stress but rather the perceived

and real absence of control by nonleaders at lower-level positions. are not the same, and expected levels of stress would certainly vary between a leader with one direct report versus someone with 1,000 people reporting to him or her.

In fact, despite such varied parameters, the trigger for stress came down to one crucial element. “The critical ingredient to having lower stress seems to be a perceived sense of control,” Gross said. “We found that the greater your level of leadership responsibility, the more control you have, the less stressed you are.”

Acknowledging that with global political and economic uncertainty rampant, stress levels are rising for everyone, the researchers asked, “If you are a leader in uncertain times, does that make you more stressed than everybody else?” The conclusion: No, because these leaders are able to assert more control over their world and have additional resources at their disposal to address the challenges.

The study said: “Occupying a position marked by a large number of subordinates and possessing substantial authority over one’s subordinates are two aspects of leadership that confer such benefits. That these positions elevate one’s psychological experience of control is not surprising; they are likely to be marked by prestige as well as objective power and influence.”

This level of social control, a personal sense of power and the ability to get people to listen to what you say are more likely to lead to lower stress levels than, say, high levels of compensation. Certainly, an executive making $30 million a year in salary, bonuses and stock options will fly a private jet, which reduces the stress of air travel. But “the critical ingredient, the kind of control that seems to affect stress, is social control,” Gross said. “This is good news for aspiring leaders.

As they develop more and more leadership skills and accept more responsibility, they can look for opportunities to develop more social ties to those in their organizations, and this sense of personal power is really stress-buffering. As they move through the ranks and if they can work to develop

Briefings on Talent & Leadership

stress, but the parameters were strikingly close. And its conclusions were startlingly similar to those of the recent leadership study here.

The two-part Whitehall Study tracked more than 28,000 British civil servants of every rank, from top to bottom, over several decades. Despite conventional wisdom and the expectations of Sir Michael Marmot, the study‘s director, the highest-ranking workers did not have higher levels of diseaseinducing stress. Indeed, Marmot‘s efforts demonstrated that between the ages of 40 and 64, civil servants at the bottom of the Whitehall hierarchy had a mortality rate four times higher than those at the top.

“The remarkable finding, which ran counter both to my expectations at the time and, I think, most other people’s, was, firstly, just looking at heart disease; it was not the case that people in high-stress jobs had a higher risk of heart attacks,” said Marmot in an interview at the University of California, Berkeley. “Rather, it went exactly the other way: people at the bottom had a higher risk of heart attacks.

“Secondly, it was a social gradient. The lower you were in the hierarchy, the higher the risk. So it wasn’t top versus bottom, but it was graded. And, thirdly, the social gradient applied to all the major causes of death.”

Instead of looking specifically at cholesterol levels or blood pressure, obesity and diabetes, the study illuminated the onset of all the major causes of death: heart disease, gastrointestinal disease, renal disease, stroke, cancers unrelated to smoking, as well as accidental and violent deaths.

What stands out about the Whitehall Study is that interviews with civil servants over the years pointed to the same outcomes as Sapolsky’s baboon research and Gross’s new stress study. It isn’t as much about the sheer amount of stress but rather the perceived and real absence of control by nonleaders at lower-level positions. Quoted in a Wired magazine article, Marmot noted: “Researchers call it the ‘demand-­ (continued on page 29)

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27

The Ooda Loop

R

ye Barcott, a special adviser

made quickly before the situation esca-

to the CEO at Duke Energy in

lated into an ugly and dangerous scene.

Charlotte, N.C., and a former

“I needed to go out with the Iraqi

in combat has less to do with the amount of control and more to do with being in the service of others. When you are

police unit so we could acquire informa-

thinking about how your team is going

cally different perspective to the issue

tion to keep our unit safe from attacks

to be affected, it puts you in a different

of leadership and stress. Having com-

that were already in motion,” Barcott

frame of mind than if you are an individ-

manded Marine units in Bosnia and the

recalled. “I realized there were a number

ual actor. The best leaders I worked with

Horn of Africa, Barcott, now 33, found

of possible bad outcomes and I had to

were always putting the welfare of the

himself leading a human intelligence

make the best out of a situation that

men and women who served under them

unit in the volatile city of Fallujah in Iraq

only had negative outcomes.”

ahead of themselves.”

Marine captain, brings a radi-

The Marines, in fact, have a decision-

in 2006. There, Barcott encountered a

From his work with the Iraqi police,

type of stress that most organizational

Barcott was able to learn that an I.E.D.

making cycle called an “Ooda Loop.”

leaders will never experience.

had been planted in another part of the

Ooda is an acronym that stands for

city specifically for his troops. The two

“observe, orient, decide and act.” The

word that a local sheik had been assas-

boys were sent to Abu Ghraib prison,

theory is that the faster a leader can

sinated. What is more, the assassins

and the bomb was neutralized before it

execute these four actions, the more

were two boys, ages 11 and 15. The trig-

could kill any troops or civilians.

effective the team will be, especially in

On one memorable day, Barcott got

german was the 11-year-old.

Responsible for “human operations,”

For Barcott, who also founded and ran an aid organization in the Kibera

a time of war when the stress is high.

“When you go into a high-stress en-

as the effort to win the hearts and minds

slum in Nairobi, Kenya, while serving in

vironment, the mind switches from fo-

of the local population was euphemisti-

the Marines, dealing with intense levels

cusing on the consequences of all that

cally labeled, Barcott knew this was a

of stress is not about having control. In

can go wrong to ‘what are the best de-

dangerous situation. After the killing,

fact, for Marines and other military lead-

cisions I can make with the least amount

Barcott and his team spread out across

ers, the moments of highest stress in

of damage with the information I have?’ ” Barcott explains.

If great leaders experience less stress, Barcott believes, it is because of an accumulated body of experience coupled with a framework for translating that experience into knowledge. “In the military, you wear a set of ribbons, which are there for a number of reasons — personal achievements, unit achievements, experiences you’ve had,” he said.

“The accumulation of experience is often valued as wisdom; and in some cases, that is bona fide. But experience doesn’t translate into knowledge unless you have the framework for reflection and making sense of that experience.”

In other words, whether or not a leader is feeling great stress is not the primary concern. “A leader casts a long shadow over an organization,” Barcott continued. “It’s always important to con-

28

combat are moments of the greatest un-

mean you aren’t true to your emotions.

police at the crime scene and eventually

certainty. There are a number of differ-

But when the stakes are very high, the

found himself seated across from the

ent outcomes, and “the fog of war is high.”

organization will feel that leader’s stress.

boys in the interrogation room. What-

“I challenge the thesis about less

A leader needs to be in a position of

ever was going to happen, it was time

stress due to more control,” he said. “The

demonstrated grace under pressure.

sensitive. Decisions would have to be

reason we experience stress differently

It has an amazing effect.”

Q2.2013

Associated Press

tain the anxiety you feel, which doesn’t the city. Barcott himself joined the Iraqi

Korn/Ferry

control’ model of stress, in which damage caused by chronic stress depends not just on the demands of the job but on the extent to which we can control our response to those demands.” If a man or woman has “a high degree of control over work, it is less stressful and will have less impact on health.”

James Bennett

Far-reaching Implications Before today’s leaders lean back in their Aeron chairs and contentedly put their feet up on their desks, they must be aware that the generalizations spawned by such studies are replete with gaping plausibility holes.

For many leaders, this smacks of a chicken-and-egg situation that pushes the theoretical up against the individual realities of life at the top. For example, Rick Goings, CEO of Tupperware since 1992 and a former Navy officer, is skeptical about the Harvard-Stanford-San Diego study. “I ask myself this question, Does it mean that leadership leads to lower stress or that people who are predisposed to lower stress are better leaders?”

If you believe that leaders tend to self-select and those who successfully maneuver their way to the top do so because they handle stress far better, then the study may be little more than a self-fulfilling prophecy, according to Goings.

A Buddhist who has been practicing transcendental meditation for 35 years, Goings doesn’t believe a leader can exert enough control over his or her environment to eliminate stress-inducing challenges.

“This is what I try to teach my direct reports,” he said. “I can’t control all of these economic circumstances. I can’t control what Chavez is doing in South America or what happened in Egypt. But I can control how I react to it. I’m not saying

Briefings on Talent & Leadership

you don’t occasionally go into stress survival mode, but I don’t live there.”

For Goings, the absence of control is the more familiar territory but not a place that guarantees a negative experience.

“I push back on that theory,” he said. “The way my people thrive here is by building one-on-one relationships of trust.

If you do that, you don’t need control. I believe that all a company is is a collection of people and the company that has the ability to recruit, develop, empower and reward the best people wins in the end.”

Goings’s theory resonates with small-business owners as well. Tom Tremblay, owner and president of the Guardair Corporation, based in Chicopee, Mass., a manufacturer of pneumatic powered tools used for industrial cleaning and maintenance, is convinced his stress levels are impacted more by his company’s profit margins than by his own sense of control.

“I think stress is inversely proportional to the level of talent in your management team,” Tremblay said. “If your margins are high enough, you can hire top talent and your stress level will go down. High margins give you the ability to pay people more and in theory, you get better talent and can attract people from a wider pool. I sleep soundly because I’ve got a good management team.”

The Minneapolis-based leadership consultant Steven Snyder agrees. In his new book, “Leadership and the Art of the Struggle,” Snyder acknowledges that with rapid advances in technology and the instantaneous results of a leader’s action, the struggle has seemingly increased at the top of organizations.

But that perception is mitigated by organizational

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dynamics. “What do we know about executives who rise to higher levels in an organization?” Snyder asks. “The first thing we know is it is a selection process. An individual becomes selected to higher levels of an organization based on a set of things, including the ability to adapt to the struggle.

Individuals who show the ability to channel their energy in adaptive ways are able to cope with situations better than those who are not. Therefore, they get more opportunity to rise to higher levels.”

According to Snyder, one of the crucial adaptive measures is the “ability to center yourself, to calm yourself down, keep your emotions from getting in the way.” To this end, he is urging aspiring leaders to embrace centering processes like meditation and exercise.

Researchers have found convincing evidence that executives who embrace a prescription of more exercise and better eating habits not only reduce stress but improve their leadership performances. Studies indicate that executives who exercised regularly had significantly higher ratings from their peers. Higher energy levels, increased productivity and better motivation were also reported outcomes, while executives who did not exercise or did so only sporadically had significantly lower ratings.

In addition, excessive body weight, which has become a global health issue, negatively influences an individual’s ability to cope with stress. Being fit and healthy mitigates the negative outcomes associated with stress.

Nina Godiwalla, founder and president of MindWorks, a Houston-based consulting firm that provides stress management, leadership and diversity training for both nonprofit and for-profit organizations, is also convinced that stress is more about the individual.

“Stress levels depend much more on the person than the position,” Godiwalla said. “If you put two people in similar roles, how they handle themselves and deal with those situations determine their stress levels. Learning how to manage your own stress is something you can control, but most people don’t see it that way. To say everyone in a leadership position is less stressed is a very big generality. What I’ve seen is the pressure to perform increases as you move up the hierarchy and the stress grows. Even if you are a CEO, you have a board of directors; so someone is always above you.”

The leadership guru Warren Bennis sees solid arguments on both sides of the debate. Ultimately, Bennis, a proponent of learned leadership, believes there is truth to the HarvardStanford study, but it is based on a foundational experience along with the privileges of rank.

“When you reach the top level, you’ve had to go through many success experiences in your life,” Bennis said. “Along the way, you develop support groups; you’ve seen situations before, gone through stresses earlier in your career. Many have been fired or had a child with an illness or been divorced.

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You develop a resilience, a hardiness and the capacity to learn from those experiences. Having overcome adversity — that is what takes these leaders to the top.”

In addition, Bennis points out, leaders find themselves with the perks of success — support, prestige, even the fawning subordinates — that all help ameliorate the stress that so many feel at lower levels in an organization.

To that end, it may be that the important question about stress isn’t how much a leader feels but how much a leader pushes that stress down into the organization. Kevin Cashman, a senior partner at Korn/Ferry International, has written extensively about stress in leaders and believes that certain types of stress — eustress (or good stress) rather than distress — can be extremely positive and a catalyst for productive behavior.

“The self-aware leader asks themselves, ‘Should I buffer or reduce stress below me via openness, collaboration, listening and empathy? Or should I drive more stress downward due to urgency or importance,’ ” Cashman said. “The less selfaware leader mindlessly transfers stress to others, unaware that their behavior is actually draining people of the energy needed to perform, further increasing the experience of pushing stress downward.”

Feeling the Calmness For Tupperware‘s Goings, a high-performance organization is one in which stress is sporadic but where great leaders grow and start to feel the calmness of their lofty posts. “Once you feel that calmness, you are a better leader,” he said. “You can get higher in organizations of value.”

At Tupperware, there are four pillars upon which leaders are judged, Goings said.

1. How are people as operators? Do they know how to write, to do finance, to develop the basic skills to do their job?

2. Do they have I.L.S. — or inspirational leadership skills?

“This is not about being a rah-rah person on a stage,” Goings said. “It about getting people to really trust you and being very smart.”

3. Do they have intellectual curiosity?

4. Have they had enough seasoning? Effective leaders grow into their roles over time and experience.

“Everybody in America who comes out of business school thinks they are ready to be a CEO,” Goings said. “I am a believer that great leaders are grown. On the journey, they learn the tools to manage stress personally. They know it’s fundamental that those at the top learn to manage stress or they won’t have success with a large organization. I break the word ‘responsibility’ into its parts — response and ability — and that’s what we try to teach people.”

Glenn Rifkin has written for The New York Times, Fast Company, Strategy + Business and many other publications.

Korn/Ferry

ot l Total r c ll Recall

On Oct. 4, 1992, a badly damaged Boeing 747 cargo plane crashed into a pair of apartment complexes in Amsterdam. Fifty-one people died in the huge fire that followed. Many who lived in the city at the time say they’ll never forget every detail seared into their minds by the disaster — the smoke over the city, the fire on TV news reports, the way the chair across the table looked when they first heard the news. After all, most people believe memories are straightforward and reliable records. (According to a 2011 survey by the psychologists Daniel Simons and Christopher Chabris, 63 percent of Americans think their memories work just like a video camera, and nearly half believe that all memories are permanent.) Unsurprisingly, then, when residents were asked 10 months after the crash if they recalled watching the TV footage of the plane, wings perpendicular to the ground, as it smashed into the buildings, more than half said yes.

Trouble is, there was no television footage of the crash. The news vans had arrived only after the plane hit. Witnesses’ sense of certainty about their memories was strong, but the accuracy of those memories left much to be desired.

And what is true of “flashbulb memories” of intense events is also true of other treasured recollections. You may have a familiar first memory — hanging tinsel on a Christmas tree as relatives fawned over your 3-year-old self, or splashing around at the beach, or saying something kid-funny to your great-aunt. If you could compare it to an actual recording, it is highly likely that you would find big differences.

Consider a simple test run by psychiatrist Daniel Offer of Northwestern University’s medical school and his colleagues. In 1962, Offer launched a long-term study of

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Matt Wood

O

By David Berreby

Korn/Ferry

Credit

I

adolescence, for which his team interviewed 14-year-old boys about their lives and attitudes. In 1991, Offer had a different team of researchers re-interview 67 of the 73 original subjects, who were by then middle-aged men, asking more than two dozen questions about what they had said and felt “when you were in high school.” How closely did their answers match what they had said and reported feeling in the past? No better than chance.

In fact, personal memories can be complete fabrications.

Remember that iconic photo, by Alfred Eisenstaedt, of a sailor kissing a nurse in Times Square on the day in 1945 that Japan surrendered to the Allies? In subsequent decades, 11 men and three women came forward to say they were the people in the photo. None was lying; all were certain in their memories of that day. But only two could have been right. Far from being unusual, this belief in false memories is easy to instill. Psychology researchers have been doing it to unsuspecting undergraduates for years.

For example, a few years ago, Maryanne Garry and Kimberley A. Wade of Victoria University of Wellington in New Zealand were able to convince 10 out of 20 young adults that they had gone for a hot-air balloon ride as children — by showing them doctored photos of their childhood selves on such a trip. A later experiment compared doctored photos with made-up narratives about the fictional balloon ride. The stories convinced an even higher percentage of volunteers that they had experienced a balloon flight years before.

Of course, natural disasters and childhood excitement evoke strong emotions. How about the memory of the mundane details of a routine workday? We all like to think we can accurately recall who met with whom, who said what, what’s in the latest report. But we shouldn’t be so sure.

n 2010, the online magazine Slate conducted an experiment with its readers. Each of the 5,279 who participated was shown photos and told that the pictures represented four major news events (for example, then-Secretary of State Colin Powell’s presentation to the U.N. Security Council before the second Iraq War or President Obama shaking hands with Iranian President Mahmoud Ahmadinejad). The reader then had to state what he or she recalled about each incident. Then the reader learned that one of the four was fake (for example, Obama and Ahmadinejad have never shaken hands; the image was fabricated).

Did Slate readers spot the fakes? Not all that well. Plenty (26 percent of those who saw the fake Obama-Ahmadinejad meeting, for example) “remembered” the false events. When asked to pick the false event out of the four images they had seen, more than half of the participants chose wrongly. They identified a photo of a real incident as the phony.

Findings like this don’t mean our brains are poor at noticing what’s happening in the world or forming lasting impres-

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sions about such events. Brains perform both jobs well. After all, being able to recall lessons learned from past experience can increase an animal’s chances of survival. That is one reason formidable brains have evolved in creatures as different as octopuses, parrots and apes. Evolution demanded an ability to recognize past experience and apply the information to future behavior, in a world with predators and rivals but no video recorders or Facebook pages.

Memories help us deal with an environment of dangers, opportunities and strong emotions — an environment where getting the gist (friendship) is important and getting details (what time exactly did they shake hands?) is not. So memory — both the personal kind that individuals carry and the collective kind that makes up the shared past of workers in an organization — is a mighty mental tool. It’s just not the tool most people think it is.

Why, then, do most of us have such misplaced confidence in our memories? Blame technology — not just because it supplies us with photos and recordings to correct our memories, but because it also supplies the metaphors we use to understand it.

Today, it seems obvious to speak of “flashbulb” memories and experiences that were “like a movie,” as if photography and video recording must be the way that brains work. But historians of science have long noticed that “thought leaders” in every era have compared the mind to the latest technological innovations of their time. And early in the 20th century, the latest and greatest tools of a modernizing, organizationcentered society included the camera and the filing cabinet, notes Alison Winter, a historian of science at the University of Chicago. And so, unlike ancient scribes who thought mem-

ory was like a wax tablet, storing impressions and then replacing them with new ones, people in the 20th century assured themselves that each memory was a discrete and permanent record. That record, they believed, would be stored in the mind until it had to be retrieved. Though the computer revolution replaced Kodak prints and paper files with digital records, the metaphor didn’t change: Modern technology “remembers” by creating discrete, changeless and permanent records — and that makes it easy to assume, mistakenly, that human brains work the same way.

As Winter points out in her recent book, “Memory: Fragments of a Modern History,” this notion of memories as unchanging records had many practical consequences. It spurred, for example, the 1950s quest for “truth serum” (a drug that would strip away confusion and deception and lay bare the contents of the mental file cabinet), and a vogue for hypnosis as a tool to recover those supposedly 100 percent accurate memories that had been buried or misplaced. This metaphor also girded the legal system’s confidence in witnesses’ ability to recall “the whole truth and nothing but the truth” whenever they had to. It led to dependence, especially, on eyewitness testimony. What could be more reliable than a witness’s memory of things she had seen with her own eyes? (In fact, eyewitness testimony is unreliable, because of the memory effects already mentioned.)

A metaphor reveals some aspects of the truth, but hides others. The concept of memory working like a computer disk helped scientists think systematically about different kinds of memory. Though inaccurate, the metaphor contributed to a better understanding.

In reality, human memory does not work like a pack of

Fortran punch cards or sectors of a hard disk. For one thing, the computer model leads us to think of memories in binary terms — is your recollection of your fourth birthday party “true” or “false”? Then, too, if you think your memories are perfect, permanent records of real experience, then any memory trouble must be a retrieval or storage problem. The memories must be in there somewhere, so call the hypnotist or break out the sodium pentothal.

Matt Wood

N n

either assumption — that memories are discrete, permanent and unchanging, or that recollections are either true or false — jibes with what researchers have learned.

Here’s why.

As I type these words, a digital representation of them will be stored on the hard drive of my computer, as a magnetic pattern on a spinning platter that (I hope) will stay unaltered through time, no matter what is going on elsewhere around and in my computer, and which will always be in that location until it’s erased or the disk fails. But my memory of working out this paragraph is dispersed among different brain regions, involving cells that, when they aren’t engaged in this memory, are performing other jobs. Each time I recall writing this paragraph, a pattern of activation occurs in various brain regions. Each time, the pattern will involve different cells, and thus be affected by their different histories — their participation in other patterns, as the brain uses them to make and recall other memories and perform other tasks.

If memory is like a map, then, as the playwright and actor Simon McBurney has written, it’s a map where we discover each time we read it that thousands of roads have been added and all the contours have shifted. “The job of remembering,”

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a

he wrote, “is to reassemble, to literally re-member, put the relevant members back together.”

This is why remembering isn’t finding the right file and pulling it up. Rather, it’s more like singing a song you think you know. What you remember is recreated each time, with materials that vary in availability and quality every time you do the task. This means that the boundary between memory and imagination is easily crossed. It is often said that we cannot escape the past; but because our memories are created anew right here, right now, it’s also true that the past cannot escape us. We create it in the present.

One consequence of this is that when we are engaged in the present tense, here-and-now activity of recalling the past, we’re susceptible to what others are saying and doing around us. Stress, social pressures and even an excess of positive feedback can affect how well memory works. Such factors also have an effect on memory content. Studies have found, for example, that listening to a speaker give a selective account of an event can induce listeners to remember it in the same way, leaving out the same details that the speaker “forgot.” It has also been

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shown that a working group’s memory of details can be altered by whoever talks the most during a meeting. Interaction with other people is one of the main reasons memories can change from day to day.

This means that the notion of collective or communal memory — the memory of an organization or community — is not just a metaphor. Shared patterns of thinking and behavior prod members of a group to harmonize their memories.

The great British psychologist Frederic Bartlett demonstrated this effect in experiments with Cambridge undergraduates in the 1920s. He would ask students to read a folktale from a Native American tribe in faraway Oregon, then wait a few hours or a few days, and then retell it.

Of course, students trying to recreate the tale left out many details. But Bartlett was more interested in what they included — because often those details had not been in the original story. Sometimes the students would transform Native American objects or activities into their ancient British analogs, recalling “acorns” and “rowing” where the tale had spoken of peanuts and paddling. Sometimes they would add

Matt Wood

An organization’s shared

Korn/Ferry

recollections of the past will define its possibilities for the present. details from their general impressions of American Indians, recalling “that Indian has been hit” as “that Indian has been hit by an arrow.”

In making memories about this unfamiliar story, the students were depending on their own shared culture — their own ways of living and their shared stock of knowledge about American Indians. Each one thought he was simply recalling what he had read, when in fact he was creating a blend of new information and what he had learned through his upbringing. n his first address as president of the United States in 1861, Abraham Lincoln spoke of “the mystic chords of memory” that bind Americans together, which he suggested might prevent a civil war.

Lincoln’s musical metaphor is apt. People who live and work together tend to harmonize their memories about the past they share.

That means that their leaders can have a huge impact — by actively engaging with communal memories as they are created, in order to shape them.

But as Lincoln spoke about mystic chords in 1861, rebels in the southern United States showed little interest in singing in the “chorus of the Union” that he described. In fact, Southerners had been seizing forts and weapons from the federal government. But the tense, uncertain days before the American Civil War broke out are remembered as a period in which the possibility of peace remained. In describing his version of the American past, Lincoln helped bolster that narrative in the minds of his constituents.

Memory for an organization, community or nation, then, has this in common with memory for an individual: Rather than a metal cabinet full of unchanging office records, it is an activity that takes place in the present. It can, and will, be influenced by present circumstances. And that is an opportunity for leaders, because an organization’s shared recollections of the past will define its possibilities for the present. They who shape the past also shape the future.

Does an actively tended collective memory have any practical consequences for an organization? Research suggests that the answer is yes. Steven P. Feldman of the Weatherhead School of Management at Case Western Reserve University in Cleveland argues that companies often overlook collective memory when trying to foster a positive and ethical organizational culture.

Such a culture has many benefits. In one study, Feldman looked at 22 companies that had maintained high moral standards over decades and found that they had more effective responses to crises, higher customer loyalty and extraordinarily

Briefings on Talent & Leadership

low employee turnover, all of which meant lower costs. But many companies fail to maintain a culture of high standards over time. The reason? They’re trapped in the storage-andretrieval model of memory, so they treat organizational memory as an archive of dead facts about the past. Instead, they should treat it as an ongoing creative activity that takes place in the present.

“Tradition is a chain of memory,” Feldman writes, “the mechanism of social and cultural reproduction that enables organizations to endure by maintaining the same identity over time.” Like recollections of an individual past, collective memories are not files to be retrieved in the same way every time they are needed. Instead, organizational memories, like the personal kind, must be created fresh, with today’s concerns and today’s emotions.

That sounds a bit like the latest descriptions of memory’s workings in an individual life. Indeed, it can seem that companies with effective traditions have anticipated today’s science of memory. They do not simply quote their founder once a year in a report or distribute ethics guidelines at an orientation meeting now and then. Rather, they nurture their organization’s memory, and their leaders actively shape it.

Consider, for example, the famous “credo” of Johnson & Johnson, which spells out the company’s responsibilities to its customers, employees, communities and shareholders.

The credo, written 69 years ago by one of the sons of company founder Robert Wood Johnson, has been referenced by management in decisions big and small for decades. It has been effective not just because it is literally written in stone at company headquarters and framed on the walls, but because executives often refer to it to explain their actions and thinking.

It serves as a guide even today because the company strives to make it a part of today’s decision making.

In fact, in April 2012, in his first shareholders meeting, J&J’s new CEO, Alex Gorsky, spent more than half an hour discussing the credo, relating each of its tenets to an anecdote that, he said, illustrated the principles. “The credo is so relevant and so essential to who we are,” Gorsky said, according to a report in the Newark Star-Ledger. “It’s part of why the company is so successful.”

It was, wrote reporter Susan Todd, “as if the company was reaching into a pocket to remind itself of the details of a favorite old map — or to prove to investors that it had not lost its way.”

David Berreby (david@davidberreby.com) writes the Mind Matters blog for Bigthink.com and has written about the science of behavior for a number of leading publications.

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The

Purpose of

Strategy

WIN is to

An interview with

A.G. Lafley

When A.G. Lafley took over as chief executive of Procter & Gamble in 2000, and later became chairman, the company produced a dizzying array of well-known brands and products including Tide, Pampers, Crest, Always and Pantene. But its portfolio of products also included coffee, snack foods, peanut butter, shortening and oils, household cleaners and pharmaceutical drugs. Lafley began asking himself: What businesses should P&G be in?

Lafley approached his job as chief executive as a product innovator and strategist. His strategy chops were earned during a 33-year career at P&G and through his interactions with Roger L. Martin, a former consultant who is dean of the Rotman School of Management at the was CEO, the two men met regularly to discuss P&G’s challenges and prospects and to review its strategic issues and opportunities.

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Gary Moss

University of Toronto. Over the course of nearly 10 years, when Lafley

Credit

Briefings on Talent & Leadership

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“

Strategy is about making choices — about choosing where you’re going to play and how you’re going to win.

The fruits of these discussions can be seen and measured.

When he took over as chief executive, P&G’s market capitalization was in the $50 billion to $60 billion range. When he retired in 2010, it was $160 billion. Gone were less-strategic brands and businesses. Lafley sharpened P&G’s focus to concentrate on household and personal care products. To that end, he acquired the razor maker and personal grooming products company Gillette, which accounted for nearly half of P&G’s growth in market value.

With decades of experience between them, Lafley and Martin decided to capture their learning in a book called “Playing to Win: How Strategy Really Works” (Harvard Business Review Press). The book draws on the foundations of master strategists like Peter Drucker and Michael Porter, a professor at Harvard Business School. (Lafley worked with Drucker, and Martin worked with Porter while a consultant at Monitor Group). But even more importantly, it is based on the insights and realworld experiences of Lafley when he was at P&G’s helm.

To explain their perspective on strategy, Lafley met with Michael Distefano, Korn/Ferry International’s senior vice president and chief marketing officer, and Joel Kurtzman, editor-in-chief of Korn/Ferry Briefings on Talent & Leadership.

What follows are excerpts from their conversation.

Why did you write this book?

Lafley: To give CEOs, business and functional leaders, managers of all kinds a simple, practical guide to business strategy. … A “do-it-yourself” playbook that would encourage clearer, better choices and result in better performance and results.

The basic idea was to bring together a practitioner, which is what I am, and a theorist, which is what my co-author, Roger Martin, is, even though we both practice and we both conceptualize. We both believe you can only really understand strategy by bringing those two perspectives together. That’s why we included P&G’s performance results in the book from when I led the company. But there’s something even more important we wanted to convey.

What’s that?

Lafley: For a lot of reasons, CEOs, presidents, governors, may-

ors, heads of hospitals and schools, don’t understand what strategy is all about. We wanted to help them.

”

means. In our view, it means three things — uniquely positioning a firm in its industry, creating sustainable advantage and delivering superior value versus the competition. It’s important that you make the necessary choices to get all three elements right.

One interesting idea in the book is that leaders don’t like to make choices, they like to have options. What did you mean by that?

Lafley: There’s a mindset among CEOs and other leaders that they don’t want to get pinned down or painted into a corner.

They want to keep all their options open. Why do they want that? Because they don’t want to take on the risk of making a bad choice or a wrong choice. But the fact is, strategy is all about making choices — choosing where you’re going to play and how you’re going to win, along with what winning means.

Is it fair to say many CEOs choose to play but not necessarily to win?

Lafley: Yes. That’s why so many companies turn in lackluster results, because they just want to stay in the game — they just want to hold on to their jobs. But what’s really going on in the CEO universe? In the ‘80s, the average CEO served for something like eight to ten years. In the last couple of years, the average CEO’s tenure is three or four years. Why is that? It’s because the stakeholders aren’t happy with the results she or he is delivering. And why aren’t the results good? I’d argue it’s because they don’t know what winning means — and they won’t make the hard choices that really distinguish and separate their company from the rest of the pack.

Some CEOs say, “Our strategy is to be opportunistic.”

Do you buy that?

Lafley: No. It’s a rationalization. It’s not a strategy.

What about CEOs who say strategy and planning are the same thing?

Lafley: That’s also a common mistake. Planning and strategy are not the same. It’s also a mistake to equate goals and strategies, or vision and strategy. I would argue if you spend a few thoughtful hours with the right team of managers and advisers, you can frame 80 percent of the critical choices you need to make to create a good strategy in virtually any industry.

Lafley: It’s about winning. It’s not about just playing the game.

It’s about winning, and you need to be very clear what winning

40

Q2.2013

If you had two or three hours, what would you focus on?

Lafley: I would want to understand the industry. I would

Gary Moss

What is strategy all about?

Korn/Ferry

want to understand the consumers and customers. I would want to understand the firm’s capabilities and costs. I would want to understand what the relevant and important competitors are going to do. And then I would want to go through what winning means.

Can you give an example of what you mean by winning?

Lafley: Winning is all about uniquely, or at least distinctively,

positioning your business or brand, product or service, to deliver a better experience and better value to a certain group

to the very specific ways we select technologies and design and formulate our products. It leads to the very specific way we choose to go to market in certain distribution channels.

What would be an example of that kind of differentiation and effort?

Lafley: Olay is an interesting story. We didn’t create the brand.

It came to us when we acquired Richardson-Vicks in the mid’80s. When we got it, Olay was a low-end skin care product that sold for about $5 in the drug and grocery store. It was a very basic pink or white beauty fluid. When we got it, we grew it from about $100 million in sales to several hundred million dollars by expanding it geographically over about 15 years. We “hoped” that Olay could become a more meaningful brand in P&G’s portfolio. Then in 2000, we needed to understand and assess the entire beauty care industry — where we were going to play — and whether we could win in beauty. We looked at the beauty care industry structure. All of the global leaders had a skin care business, a hair care business, and most had a cosmetics and a fragrance business. We learned that the skin care product lines really drove value. Shiseido had been around 150 years. L’Oreal 100 years. Estee Lauder 60 years. So, the best competitors had a significant head start and very strong skin care brands. We decided we had to win in skin, and at the same time try to learn our way into cosmetics and fragrance.

of customers to attain competitive advantage versus certain competitors. At P&G, I often talked about winning with “those who matter most” — a specific segment of consumers — and “against the very best competitors.” When you win with consumers and against competition, you deliver superior value to your stakeholders — shareholders, employees, et al. A good example at P&G is SK-II, a small, high-end skin care brand we acquired with the Max Factor business. In that business, we needed less than 1 percent of women to buy SK-II to win. But we needed the right 1 percent: highly skin-involved women who use several skin care products every morning and every night. We needed women who were really into their skin care and appearance, and were really loyal to their skin care products and brand. But we only needed 1 percent of them to build a leading, high-end niche business with very high consumer loyalty and strong profitability.

That requires strategy rather than opportunism, correct?

Lafley: Yes. Our strategy leads to the very specific consumer and market segments we serve and to the very specific, highly differentiated positioning of our brands and products. It leads

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Q2.2013

Lafley: We decided to see if we could create new customers for Olay. According to Peter Drucker, the primary purpose of a business is to create a customer. We began by developing what we call customer insights. In the late ’90s, anti-aging was the big segment of the skin care market and the high-end Shiseido, L’Oreal and Lauder prestige brands were sold in department stores and specialty stores. Their target market was women in their 50’s. And their products were promising wrinkle reduction and even elimination. In our consumer research, we learned that a lot of women started to worry about the condition of their skin at a much younger age — in their 30’s. And these women were concerned about more than just wrinkles — skin texture, fine lines, age spots, sun damage. … The more we learned from women about their skin care wants and needs, the more convinced we became that we could make two important strategic “where to play” changes for Olay. First, lower the target point-of-entry age for anti-aging skin care products from the 50’s to the 30’s. And, second, broaden the range of treatment benefits in Olay’s anti-aging products from only wrinkles to all of the important signs of aging — what Olay eventually called the “seven signs of aging.” These two strategic decisions effectively increased the size of the fast-growing anti-aging skin care segment, further accelerated growth of this segment, and gave Olay an opening to enter — re-enter, really — the segment serving younger women with broader-benefit products.

Gary Moss

What did you do?

Korn/Ferry

Did you do it using the same products?

Lafley: No. We redesigned and reformulated the products,

“promises made, but not kept.” And yet the promises kept getting made. So we had a very simple approach with Olay. If we made a promise, we were going to keep it. Our fundamental approach with Olay and its consumers was a partnership. We’ll provide the brand and the products, but you have to use the products in your daily skin care regimen. If you buy the right products, and use them together, and you use them regularly — every day, every week — over time, you’ll see meaningful improvement in your skin’s condition. So, what we did with Olay was to promise continual improvement. We didn’t promise gorgeousness overnight. Our promise was continual improvement over a lifetime. It was a credible promise. The products delivered for many women. And enough women bought Olay to take sales over $2 billion by 2007.

W and we created boutiques or product lines, like Total Effects, Regenerist and Pro-X, that offered different product segments at different price points. We also found a technology partner in Sederma, a French company. They had a unique technology and ingredient that worked well in our product formulations.

We then made the next critical strategic where-to-play decision. Working with discount store and drugstore retail partners, we created a new segment called Masstige — positioned between low-priced mass skin care brands, where Olay had been, and high-price prestige brands. We re-priced Olay Total Effects right below Clinique’s opening price point, in the midpriced $15 to $25 range. We designed a “prestige-like” pack-

“

Our strategy is what led to our very specific brands — it leads to the very specific consumer and market segments we serve. age for Olay Total Effects. We tested the products successfully against prestige brands. Then we went to retailers like Target, Wal-Mart, CVS and Boots to ask if they would join us to create a better skin care shopping experience in their stores — a boutique-like merchandising approach that would bring Masstige to life for shoppers and switch some skin care brand and product purchases out of prestige channels and into mass channels.

With Olay, was your strategy to focus on profits?

”

Lafley: No, on consumers. We asked ourselves, “Can we create

enough new Olay consumers with our brand and our products?” And “Can we create a better shopping experience in mass discount and drug stores?” And then we asked, “Can we build a business of about $1 billion?” In 2000, when we started to redo Olay’s strategy, if you told me the brand was going to do $2 billion to $2.5 billion in sales, I wouldn’t have bet on it. What we ended up with was a leading brand position in skin care.

Was this a new segment for your retail partners?

Lafley: Yes. This new segment, Masstige, offered brands and products that looked “prestigious” but were mid-priced and mass-marketed. That was our strategy — reframing antiaging, lowering the point of entry and creating the Masstige segment — to disrupt prestige and reinvigorate mass marketing. Over time, we discovered that a lot of women didn’t like a lot of things about the department store prestige shopping experience. They didn’t like the pressure from salespeople on commission. Ultimately, we learned women were buying certain products in the department store, other products in the discount (store) and drugstore, and increasingly replenishing products online. More and more women were shopping across channels. P&G’s mass retailers saw this as a huge opportunity to shift business into their stores.

How important were the new ingredients to the product?

Lafley: Very important. Olay’s products had to deliver… and they did. Since time immemorial, the story of beauty care was

Briefings on Talent & Leadership

As a strategist, how did you know the decisions you made were the correct ones?

Lafley: I didn’t. As we point out in the book, a potentially winning strategy shortens your odds, it does not guarantee success. Business is inherently risky. Customers are demanding.

Competitors are formidable. To improve our chances of success, we looked at industry attractiveness and whether there was a segment we could serve. We looked at whether there was value we could create for the consumer and for the channel and customer. And, of course, we looked at whether there was value for us. And then, we looked at P&G’s capabilities.

What were your metrics?

Lafley: Three things. We looked at revenue growth, gross and

operating margin growth, and various measurements of cash flow productivity, depending on the business capital structure. These could be return on capital employed, return on inventory investment, and so on. And then, in addition to

Q2.2013

43

these three things, we would look at the competitive environment. And then we’d take a step back and say, “Where do we want to be 10 or 20 or 30 years down the road?”

You sold a lot of P&G’s businesses. How did you make strategic decisions regarding what businesses to keep, what to sell and what to acquire?

You also bought companies. Why did you acquire Gillette?

Lafley: We used the same strategic framework. And then we

Lafley: Strategically, Gillette was a great “where-to-play”

looked at additional drivers of the decision depending on the businesses and our capabilities and, of course, the market.

Pringles, for example, was a global snacks brand, but I wanted the company to move out of food and beverages.

So you sold Pringles for strategic reasons?

Lafley: Yes. It wasn’t in an attractive industry for us. To un-

derstand if an industry is attractive, you have to ask, are there customers and consumers you can serve in a unique way to create value for yourself? You have to ask, how do you stack up against the competition? Do you have the right capabilities and costs for the industry? And, you have to ask about the competition. You have to ask yourself those questions regarding every business you’re in, and with Pringles, none of those worked for us. It all boils down to the classic Peter Drucker question: What businesses should I be in? And what business should I not be in? When I joined P&G in the mid-‘70s, we were a food and beverage company, a paper company and a cleaning products company. When I left in 2010, we were a household care and personal care products company. All the food and beverage businesses were gone.

Sounds like strategy and capabilities were the most important determinants of what businesses stayed in the P&G portfolio.

Lafley: Yes. You have to face facts and say, “You know, we’re really not competitive here.” Which means you’re faced with the hard part — making a choice. We got out of the pharmaceutical drug business. We had a big success with Actonel for postmenopausal osteoporosis, and we were on the verge of a huge success with Intrinsa, a testosterone patch for women, which was approved in Europe and Canada but not approved in the U.S. It could’ve been a $1 billion-plus drug. But we got out of pharma because we didn’t think we could compete with global leaders like Pfizer or Johnson & Johnson or Novartis. We didn’t think we could keep up the huge research investment that’s required in that business. And we couldn’t compete on regulatory. To be in that business you need a huge regulatory operation to work with the U.S. Food and Drug Administration and its equivalent organizations around the world. And we couldn’t keep up with all the lobbying that’s required in that industry. P&G’s lobbying office in Washington has three people in it, while the health care industry has one of the biggest lobbying groups of any industry. And, finally, the decision

44

to use pharmaceutical drug products isn’t made by the consumer. It’s made by the doctor. The fact is P&G’s strategic business model focuses on household and personal care products that are bought weekly and used daily. That’s not the business model for pharmaceuticals. So we sold that business.

Q2.2013

choice. We wanted to be in male grooming and personal care — including skin and hair care. We wanted to be in female grooming. And we were interested in their Oral B toothbrush business to strengthen Crest’s position in oral care. But the most important reason we went for Gillette was that Gillette was a great fit with P&G’s strategic capabilities. We figured with our consumer knowledge and their category-leading positions, there would be opportunities. We thought our ability to innovate with them would be a big plus. The global reach and scale of our businesses was a good match. P&G was stronger in China, Gillette stronger in Korea. Together, we could see our way to billion-dollar businesses in Brazil and India. Gillette and P&G combined were much stronger partners with our suppliers and retailers.

The acquisition added a lot to the value of your company, didn’t it?

Lafley: Gillette added $10 billion to our sales and $50 billion to our market cap. But, more importantly, it opened up new categories and markets for us. In 2000, our market cap was less than $60 billion. In 2010, our market cap was about $160 billion. So we added about $100 billion of market cap in the first decade of the new millennium, with about half of it acquired, mostly with Gillette. The other half of our market cap growth was organic. Our top-line compounded annual growth rate was 11 percent, 5 percent organic, 6 percent acquired. Our bottom-line growth rate was 12 percent earnings-per-share growth. Importantly from a strategic perspective, in early 2000, 55 percent of our revenue came from P&G’s core strategic businesses. By 2010, 80 percent came from core strategic businesses. In 2000, P&G had 10 brands that did $1 billion or more in annual sales. In 2010, P&G had 25 billion-dollar brands.

Did all that growth result from the strategic choices you made?

Lafley: Absolutely. These results came directly from focusing

on our three most important strategic decisions — grow P&G’s core, extend into beauty and personal care, expand into emerging markets. Fortunately, it worked. It shows just how powerful a few strategic choices can be. We wrote the book to help other CEOs, business unit (heads) and functional leaders make better strategic choices for their companies. The essence of strategy is making choices to distinctively position your company to win.

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Credit

Massachusetts Institute of Technology

MIT Media Lab building in Cambridge, Mass.

Photo by Andy Ryan

To stay at the cutting

a

edge, MIT went outside its comfort zone

renegade in the lab

By Lawr ence M. Fi s h er

Credit

hen the Media Lab at MIT sought a new director last

year, from a global list of candidates, it’s safe to say the recruitment committee did not go looking for a college dropout, a former “rave” organizer or a godson of the late Timothy Leary. But they got all that and more in Joichi Ito, a Japanese venture capitalist, social activist and world citizen whose résumé makes up in unusual pursuits what it lacks in formal academic credentials.

A traditional search produced hundreds of qualified applicants, who were narrowed over a year to a short list, but without yielding a good fit. Nicholas Negraponte, the lab’s founder and its director for many years, had publicly clashed with the outgoing leader, Frank Moss, describing his tenure as “a five-year period like the Dark Ages.” He knew Ito socially and personally recruited him, tracking the peripatetic venture capitalist down to Santa Catalina Island, where he was indulging in his latest interest/ obsession, scuba diving.

“I had never been to the lab,” says Ito, who is 46 but looks decades younger. Commuting to work on his singlespeed bicycle, he could pass for a grad student. “I had things to do; I was running Creative Commons, investing, living in Dubai, diving every weekend. Nicholas called me in between dives. Oddly the technology didn’t work and we could barely hear each other. Later, I was diving in the Bahamas, and he called me again and said come up here as soon as you can.”

He visited the lab on March 11, 2011, which was by coincidence when the earthquake and tsunami hit Japan, so Ito was preoccupied by the need to find out if his family and friends were safe. Typically, he also immediately launched a startup to distribute Geiger counters and do radiation tests faster than the Japanese government would or could. But he spent two days in conversation with Media Lab staff and students and rapidly developed a mutual rapport.

“It was the most interesting two days I’d had in a long time,” Ito says. “Then came the formal stuff, and them trying to get their heads around my not having an academic degree. My role is a little bit odd, because normally the director is also a professor, and I’m not a professor. For the most part, anything limiting is hidden from me, and I felt fundamentally welcomed.”

Q2.2013 Joichi Ito, director of MIT’s Media Lab.

47

Ito may not have the sort of grand vision Negraponte had for the lab when he created it, but he does have an ambitious — and potentially disruptive — agenda. He means to “open” the lab, both literally, by inviting more outsiders in, and metaphorically, in the Open Source sense of the word, to make it less like Apple and more like Mozilla, creator of the open-source Web browser, Firefox. He is already shaking things up, bringing in a diverse group of director’s fellows, most of whom share his lack of a formal academic background, and striving to open the lab up to the kind of informal collaboration that typifies the world of Web startups. “To me, the Media Lab felt like a container. It was a little bit connected, but not real connected. I’m trying to turn it from a container into a platform: the Media Lab Network.”

One of his first steps was to eliminate a senior faculty committee that his predecessor had established. New projects now can go forward without passing through as much bureaucracy, more akin to the spontaneity of Internet startup launches than the deliberative way large corporations work. “We’ll see how it goes,” Ito says. “I’ve been able to make decisions rapidly that would have been political in the past. People may argue with me, but they don’t get as upset as they might have. Also, part of the position of director is communicating, and I think the Media Lab has gotten more attention since I came in. I think they wanted someone who can connect to high-level contacts around the world, which Nicholas did a lot of, but other previous directors did not.”

Ito sees it as part of his mission that more of the lab’s programs are available to the public, not just paying sponsors. He also wants to make students and faculty more available, using the social media tools that are second nature to him, and to the generation currently attending MIT. Ito divides time into BI and AI, as in Before the Internet and After the Internet, and in his vision of AI, owning an asset is now less important than sharing it, whether the asset is student and faculty talent or intellectual property.

“I’m shifting away from IP as a primary focus,” Ito says.

“IP is a byproduct of a process. You can’t patent ideas, only processes. And we’re really good at ideas. We were doing the multi-touch screen a year before Apple. We do create about 20 patents a year, and some of them are valuable, but a CEO is going to pivot their business a lot more rapidly after interacting with our students and faculty, and that’s so much more valuable. The real bang for your buck is that every two or three years, you’ll see something here that makes you make a multibillion-dollar decision differently.”

Negraponte created the lab in 1985 to explore his hypothesis that the broadcast and motion picture industry, the print and publishing industry, and the computer industry would go beyond their already overlapping spheres of influence to a nearly complete merger. As Stewart Brand wrote in “The Media Lab, Inventing the Future at MIT” (Viking 1987), Negraponte’s vision was that all communication technologies were suffering a joint metamorphosis, which could only be understood properly if treated as a single subject, and only advanced properly as a single craft. He posited that the best way to figure out what needed to be done was through exploring the human sensory and cognitive system and the ways that humans naturally interact.

In 1985, Apple’s Macintosh was just a year old, and Ethernet, the technology that allowed personal computers to link across a network, was also recently introduced. Yet Negraponte and former MIT President Jerome Wiesner were able to raise the necessary millions to fund the lab, with much of it coming from corporate sponsors, plus the Defense Advanced Research Projects Agency (DARPA) and the National Science Foundation. Its early projects had a distinct consumer electronics focus, like its foray into HDTV standards, with the assumption that they would lead to new products for its sponsors.

Ito was born in Kyoto, Japan, but spent much of his childhood in Detroit, where his parents worked for Energy Conversion Devices, which was known for innovations in optical disks, rewritable memory chips and thin-film solar panels. Joi Ito also worked for ECD in his teens and came to regard its chief inventor and founder, the late Stan Ovshinsky, as a second father, particularly after his own parents divorced. In 1987, Ito moved to Silicon Valley, where he met John Markoff, a technology reporter for The New York Times. Markoff gave him a copy of MacPPP, the original Internet client software for the Macintosh. To Joi Ito, that simple program demonstrated how the Internet was about to transform from a scientist and engineer’s tool into a mass media platform. Back in Japan, he met the founders of

Global Citizen. Ito was born in Japan, grew up in Detroit and has worked around the world.

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Q2.2013

Korn/Ferry

Global Strategy, Local Players

Joichi Ito’s World of Warcraft Guild

A

lthough Joi Ito has started a number

acquire weapons, capabilities and

I see this in Joi,” says John Seely Brown, a

of companies and served as chief

experiences. But to advance beyond a

management writer and past head of the

executive of the Creative Commons for

basic level requires at first small teams,

Xerox Palo Alto Research Center, or

three years, he has relatively little

to battle legions of automatons in

PARC. “Once he knows what he really has

operating experience, at least in this

dungeons, and later, very large teams,

to do, then he becomes incredibly

world. But he has voluminous manage-

called guilds, to battle other players

creative in finding resources anywhere in

ment experience from thousands of

in raids.

the organization. He never even thinks

hours in the massively multiplayer online

Long frustrated by the conventional

about the fact that he’s just jumped over

role-playing game World of Warcraft,

hierarchies operating in even the most

three silos. He has found out how to find

where he heads a global group of several

innovative technology companies, Ito

who knows what, wherever they are, and

hundred in one of the game’s oldest and

says he sees in his Warcraft guild a new

how to engage that person to help him. It

largest guilds — an association of players.

way to organize, manage and motivate

completely slashes through the barriers

It is a global team with local players and

people. While he is not currently playing

in hierarchies. World of Warcraft instills

serves as a model for the way the world

World of Warcraft, Ito remains in contact

that spirit, finding the

is evolving.

with his guild members and hopes to

people wherever

resume when he has more time. He calls

they are to

is a very intense kind of play focusing on

himself “guild custodian,” rather than

master each

strategy, tactics and role playing. He has

leader, and although he is constantly

new quest.”

no money in Blizzard Entertainment,

facilitating movement, he resolutely

Warcraft’s creator, but the hours he has

refuses to exercise power, instead letting

invested rising through the game’s

solutions bubble up through the guild’s

rankings would probably have sufficed to

membership. He prefers to work the

produce a doctoral dissertation. And he

people issues, counseling a guild member

is constantly in touch via e-mail, i-chat

with bipolar disorder to take his

and cellphone with the many members of

medication, or shifting play hours to

his guild, a diverse body scattered

accommodate an emergency room

around the globe, across demographic

nurse’s changing schedule. Guild

groups and age levels.

members live around the world.

World of Warcraft is play, but for Ito it

Players advance in World of Warcraft

“In World of Warcraft, much of what

by engaging in a series of quests in which

you learn is how to improvise or

they must battle autonomous foes to

accumulate the resources you need, and

International KK, an American company trying to offer the first commercial Internet service in Japan. They couldn’t find space to rent, so he lent them the bathroom in his apartment.

He served as CEO of PSINet Japan — the company that acquired IKK — for a year and eventually moved them into a real office.

Thus began a remarkable career as a serial entrepreneur and angel investor. After leaving PSINet, Ito launched Digital Garage, a Japanese Web solution provider and incubator, which he took public in 1999. The venture firms J.H. Whitney and PSI Ventures seeded his firm Neoteny (the word means “retention of childlike attributes in adulthood”) with $20 million, to serve as an incubator for new infotech companies.

When incubators fell out of favor with the bursting of the Internet bubble, Ito attempted to transform Neoteny into a traditional venture fund, but after funding Six Apart, a blog company, he returned the remaining cash to the shareholders and focused Neoteny’s resources on building Six Apart Japan.

With his own funds, Ito made early-stage investments in Kickstarter, Twitter, Technorati, Flickr, SocialText, Dopplr, Last.fm, Rupture, Kongregate, Etology Inc, Fotopedia and other social media companies. He says his average

Briefings on Talent & Leadership

investment is less than $100,000, and while he’s invested in hundreds of companies, he only boasts about four of them.

He sits on numerous boards, including the New York Times Co., the John S. and James L. Knight Foundation, and the John D. and Catherine T. MacArthur Foundation.

With his portfolio companies and volunteer activities primarily in Japan and Silicon Valley, Ito spent years shuttling between Tokyo and San Francisco, and at one point realized he spent more time on United Airlines than in his own bed.

An inveterately social animal, he often stayed with friends in his travels, like the Harvard law professor Lawrence Lessig or LinkedIn’s founder Reid Hoffman, rather than in hotels.

He has been a frequent speaker at events ranging from the World Economic Forum meeting in Davos, Switzerland, to the South by Southwest Conference in Austin, Texas, which brings together technocrats, rock stars and independent filmmakers. He may be the one person on earth who would be equally welcomed by the bankers inside and the anarchists outside the next meeting of the World Trade Organization.

In 2008, Ito and his wife, Mizuka, moved to Dubai because he wanted to gain a better understanding of the Middle East, and he took over the leadership of the Creative

Q2.2013

49

Commons, a nonprofit organization that has produced alternatives to copyright for the distribution and sharing of original material. In this role, Ito became a vocal advocate of emerging democracy and the sharing economy.

“The single most unique thing about Joi is his lateralness,” says Howard Rheingold, author of “Net Smart, How to Thrive Online” (The MIT Press, 2012). “Joi always has been very comfortable communicating with and moving in very different worlds. He’s welcome at the hackers convention, the serious one in Amsterdam, but he also will talk with the CEO of Sony. I don’t think anyone else has that kind of reach. He knows most of the top journalists, and people in the business world, but he also knows the rebels and the geeks. He has a very strong ideological dedication to the kind of liberty that the Electronic Frontier Foundation and the Creative Commons represent, liberty for individual users to be creators of content and new kinds of companies. Yes, he will deal with CEOs of giant companies and they will take his advice, but he is very much on the side of not locking down the abilities of users to create things like Google in their dorm rooms.”

Ito will need his talent for lateral thinking at the lab, which has evolved from its early consumer electronics focus to a much more diffuse organization. Current projects run an inconceivably wide gamut from folding electric cars to a program in synthetic neurobiology, led by Associate Professor Ed Boyden, which is inventing new tools for analyzing and engineering brain circuits. And while the Media Lab has always been about crossing the boundaries of disparate disciplines, its current mission goes a step beyond that, requiring a new word: antidisciplinary.

Ito explains, “Interdisciplinary is you have a biologist talking to a chemist. Antidisciplinary means you don’t get to say you’re a biologist. If what you’re doing fits within a single discipline, you shouldn’t be here.” He notes that the lab has three faculty searches under way, and he says he would love to find someone in a field that he doesn’t know exists. “We’re looking for three things: uniqueness, impact and magic,” he says. “If somebody else is doing it, we shouldn’t be. It should hit the world in a meaningful way. And the magic part is important, too; it’s got to be surprising.”

One of Ito’s first contributions is the creation of the Director’s Fellows Initiative, part of his effort to open the lab up to the world. “What all the fellows have in common is that they are passionate leaders in their fields, and that they embody the lab’s uniqueness, impact and magic,” Ito says.

“They’re also all passionate about collaborating with the lab.

50

Q2.2013

You should never be able to guess who’ll be the next new fellow by looking at who’s come before.” The first group of fellows includes Detroit community activist Shaka Senghor, chess grandmaster Maurice Ashley, Hollywood producer J.J. Abrams and Nairobi-based technologist and activist Juliana Rotich. The plan is to ramp up to between 20 and 30 active director’s fellows by the end of 2013, with about 10 in residence doing hands-on, day-to-day research at the lab.

Ito says the lab’s faculty members were initially skeptical about the program, but have come to respect it. “When I first talked about these fellows, there was lots of concern about what these people were going to do. After I brought them in, people said, ‘Now I get it.’ We would not normally have found these people because they’re not part of the lab’s network, but bringing them in had substantial impact,” he says.

The lab is supported by close to 80 members, including some of the world’s leading corporations, and the Knight Foundation. These members provide the majority of the lab’s $35 million annual operating budget, but uniquely, do not direct their research funding in any way. “We don’t have deliverables, and the funding is not based on grants,” Ito says. “Grants are incremental; you ask for money for something you’re already building and problems you already sort of know the answer to. We’re answering questions you don’t know to ask, and you can only do that with undirected funding.”

That the lab is essentially unfocused is a strength disguised as a weakness, Ito says. Focused research might provide answers to finite questions, giving an incremental return on a donor’s investment, but really big opportunities arise out of pattern recognition and the kind of peripheral vision that flourishes in an unfocused environment.

Peripheral vision allows for more serendipitous discoveries, and almost paradoxically, leads to insights with greater impact. For example, the lab’s work in advanced threedimensional printing might prompt a company to make the strategic decision to exit manufacturing altogether, a bigger decision than whether or not to produce a specific product.

Ito says one of his goals is to broaden the lab’s donor base beyond corporate sponsors to include more foundations and wealthy individuals. “I want to see a much greater emphasis on the social side,” he says. “I am connecting with philanthropists so the source of funding won’t only be from corporations, and creating a social network with lots of people outside of academia. I see us shifting away from consumer electronics to ecosystems and communities, systems instead of objects. As the network enables us to be more open, we need to collaborate not only with companies and institutions, but with individuals, engineers and students.”

Ito is uniquely qualified to lead the lab in this quest because his entire life is like an open-source software project. He famously posted his cellphone number on his blog and has always been happy to speak to anyone whose work captures his interest. While Ito professes to have no fixed agenda, the common theme among his interests and investments is always media and media-created communities. From blogs to wikis to his passion for the multiplayer online role-playing game World of Warcraft, these are all instruments that allow people to communicate

Korn/Ferry

and collaborate in new ways and that, in turn, give rise to new kinds of organizations.

“He’s one of the few people I’ve met, particularly among venture capitalists, who really understand social networks online, and he understands because he digs in and gets his hands dirty full time,” says Jimmy Wales, founder and chief promoter of Wikipedia.

Ito has long been known as self-taught Renaissance man, who attended a few classes at Tufts and later the University of Chicago, but dropped out to work as a club D.J. and to organize raves, the giant dance parties fueled by electronic music and, often, the drug ecstasy. Ito says he is driven by a boundless curiosity, a horror of boredom and a desire to be where smart people are changing the game. “Just about everything I get involved in has a steep learning curve, has a lot of unknowns, and has risks. It may be a kind of addiction and obsession. Just as some people are obsessed with money and are willing to do boring things day in and day out to be wealthy, I’m obsessed with always being in a state of wonder and doing things with cool people.

“He says he’s found his perfect milieu in the Media Lab, where the sheer breadth and depth of the research projects challenge even Ito’s remarkable capacity for self-teaching. While the lab flourishes by being unfocused, Ito says he has to be more focused than ever before just to keep up. He is moving his wife, mother-in-law and their four dogs to Boston, and even thinking about having children.

For the first time in his life, Joi Ito is putting down roots.

“Right before I joined, I was still flying around the world every month,” Ito says. “Partly because I had to stay in America to get my visa, I spent six months in Boston, getting to know the lab and the students. Now I’m traveling about half the time, and 90 percent of that is lab-related, going to conferences, meeting with partners. I’ve never been so focused in my life, and I still need to spend about half my time right here because the operational stuff is very peopleoriented. I’m much more local than I’ve ever been. For the first time in my life I don’t have jet lag all the time.”

The scope of the lab’s research projects has kept Ito on the steep part of the learning curve where he thrives.

“Probably the thing I’m weakest on here is the biology stuff, but it’s also the most interesting,” Ito says. “I couldn’t do it, but I can explain a lot of it now, which is kind of my role. I tend to have one big cognitive model that I put everything into, rather than individual disciplines. We have tremendous depth and it may look random if you just walk through, but there are consistent narratives here.”

Briefings on Talent & Leadership

A sampling of lab endeavors gives a hint of the breadth of its more than 300 research projects, led by 26 faculty and 140 students. Consider Object-Based Media, led by V. Michael Bove, which asks, what happens when self-aware content meets context-aware consumer electronics? Bove’s group makes systems that explore how sensing, understanding and new interface technologies can change everyday life, the ways in which people communicate with one another, storytelling, and entertainment.

Or take Cynthia Breazeal’s work with personal robots.

Breazeal and her students have developed numerous creations, including robotic flower gardens. Other projects include embedding robotic technologies into familiar everyday artifacts, like clothing, lamps and desktop computers, and creating highly expressive humanoids — including the well-known social robot, Leonardo. Ongoing research includes the development of socially intelligent robot partners that interact with humans in human-centric terms, work with humans as peers and learn from people as apprentices. The ability of these robot systems to interact, learn from and effectively cooperate with people has been evaluated in numerous human-subject experiments, both inside the lab and in realworld environments.

And it’s not all bits and bytes either. Tod Machover, an avant-garde composer, has produced a number of contemporary symphonic works and an opera of the future, Death and the Powers, which tells the story of a successful and powerful businessman and inventor reaching the end of his life and facing the question of his legacy. He is now conducting his final experiment, passing from one form of existence to another in an effort to project himself into the future.

Machover asks, is it possible to see sound, or touch sound, or to have sound touch you so deeply that it can change your mind, your body, your life? And he answers yes.

Nicholas Negraponte is currently on leave from MIT, but he keeps his hand in, and Ito says they meet often. “The lab is about reinvention. That’s also one of its core principles, and I think it constantly needs to be changing.” Ito says. “In that sense, I’m supposed to be pushing for change. Nicholas and I spend a lot of time together now. And we disagree on half the things we discuss, pretty vigorously, and we agree deeply on the other half. Even when we disagree, it’s useful, because Nicholas is very good at explaining why he feels the way does.

He is very supportive of me pushing the lab in directions that are slightly uncomfortable. They’d rather be uncomfortable than stagnant.”

Lawrence M. Fisher has written for The New York Times, Strategy + Business and many other publications. He is based in San Francisco.

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Credit

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Korn/Ferry

C alling O n a

Steady H and

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Credit

Telecom Italia’s Franco Bernabè

Briefings on Talent & Leadership

By Timothy Hindle

Italy’s economy is in a sorry state. In the two years after the bankruptcy of Lehman Brothers, the nation’s G.D.P. fell by some 10 percent. And the misery did not end there.

The G.D.P. decline has resumed in each of the past five quarters, and the European Union is forecasting that the recession will continue at least until 2014.

It is taking its toll across the board — on private income, with unemployment over 10 percent and more than a third of young Italians without jobs; and on public services, constrained by government debt, which within the euro zone is (proportionately) second only to that of Greece.

Leading a business in such an environment is extremely demanding, and Briefings went to Rome to meet Franco Bernabè, one of Italy’s most enduringly successful chief executives, to hear his views on how to thrive in these difficult times.

Franco Bernabè has been chief executive of Telecom Italia twice. His first stint on the job began in 1998 and lasted about as long as Italy’s government at the time — which is to say, not very long.

A month after he arrived, Olivetti made a highly leveraged hostile bid for the company. Once the darling of Italy’s fledgling information technology industry but by then fading fast, Olivetti was looking to reinvent itself in telecommunications. For six months, Bernabè fought hard to fend off the bid. But he lost when the government and the central bank ultimately refrained from putting their not inconsiderable weight behind him. He did the honorable thing and resigned.

Bernabè took time to think about what to do next. He was not a wealthy man, but in 1999 jobs were scarce. “I decided to become an entrepreneur,” he said. “It was tough.

How different it is to being a top manager. All of a sudden you find yourself without assistance, without help.”

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But Bernabè’s career shift paid off. He started a consultancy and an investment business. Both were successful, and he eventually sold them to the Rothschild Group. In 2007, Telecom Italia’s shareholders asked him to come back to run their by-then-heavily-indebted corporation, and he found himself ready for the challenge.

But the timing again was not ideal. Within months, Lehman Brothers collapsed and Italy plunged into economic recession.

For years now, his real challenge has been to find growth when all around is shrinking.

B

Mr. Nice Guy

Bernabè is not a typical business leader. He likes to tell a story about when he was working for Fiat in the early 1980s.

At the time he was chief economist in the sprawling car maker’s planning department, not the normal starting point for

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an aspiring CEO. He was enjoying the job, but he wanted to get closer to the core of the business. So he went to the head of the human resources department — Fiat had some 350,000 employees at the time — and asked if he could be transferred into line management.

The H.R. boss told him Fiat had two rules that were relevant to his case. One rule said that if you were good at something in the company, you stayed with it. The other said that if there were two people competing for promotion and they had identical skills, C.V.s and track records, you chose the meaner of the two for the job. In his judgment, Bernabè was too much of a gentleman to become a line manager. “Forget it,” he said. “You’ll never be a manager.”

Fiat’s loss was to be Eni’s gain. In 1983, Bernabè moved to become an assistant to the chairman of Italy’s oil-and-gas giant. Eni was a peculiar animal, more like a government

Previous page: Courtesy of Telecom Italia. This page: Associated Press/Luca Bruno

Eni’s CEO, Franco Bernabè (right) with Attilio Ventura, chairman of the board of the stock exchange at the entrance of the Italian stock exchange in Milan on the occasion of Eni’s listing in 1995.

Korn/Ferry

Bernabè was in the job for seven years and what he achieved during that time became the stuff of legend and the subject of a widely read Harvard Business School case study. department than a corporation, with interests spread all across the globe. It was riddled with inefficiencies and with corruption. Its chairman at the time, Franco Reviglio, was a respected economist who had been one of Bernabè’s professors at the University of Turin.

After awhile, Bernabè was promoted to head of corporate planning and development. It was a move that gave him an unrivaled view of the organization’s structure and shortcomings. It also gave him a unique opportunity to understand what was required to bring Eni into the corporate mainstream at the close of the 20th century. “I am very analytical,” he said.

“I got to know the organization well, and I developed the analytical framework that was needed to do the right things to take the company where it was needed.”

Fate introduced an unexpected opportunity. A new government swept into power in 1992 and Reviglio, Bernabè’s mentor, became a minister in the Cabinet. The life of late 20th century Italian governments was measured in days, not years, and this one survived for only 298. But that was long enough for Bernabè to be appointed chief executive of Eni. He was 43 years old and very junior. “People thought it was a joke,” he said. “I was completely outside every political circle. They gave me six months to survive.” He did much more than survive.

He thrived.

Bernabè was in the job for seven years and what he achieved during that time became the stuff of legend and the subject of a widely read Harvard Business School case study. It started in spectacular fashion: A few months after he took over, 20 of the company’s top executives were arrested and thrown into jail on corruption charges. A few months later, Gabriele Cagliari, who had been chairman of the company from 1989 to 1993, committed suicide in prison.

It was a challenging time, a vital moment in Bernabè’s development. After the arrests, he had to give two speeches — one in Rome and one in Milan — to Eni’s employees, thousands of people, most of them hoping to hear that the judges who had carried out the arrests were wrong and that their organization was right. But Bernabè said just the opposite. “We need to do things differently,” he said. “We need to create a

new organization. I will not defend the people in jail.”

At this point, Bernabè demonstrated courage, steadfastness and an ability to communicate what he wanted to do and then (initially to the surprise of many) to do it. He is a great communicator and he is a man of his word.

It helps, of course, to know what needs to be done. Bernabè spent a long time putting his powers of analysis to work figuring out Eni’s problems until the answer became clear.

He had to turn what was a mere adjunct of government into a fully privatized commercial corporation. He started by asking for the resignation of 250 of the company’s top managers.

By 1997, Eni had shed tens of thousands of employees, had sold off 230 different operations and was listed on stock exchanges in both Italy and the United States.

At this demanding time, Bernabè discovered an attribute that he believes is particularly valuable for a leader. “A person who has to make important decisions has to make them alone,” he told the Harvard Business Review in 1998. “You need an inner compass to indicate the way.” He quotes Shimon Peres, president of Israel and a former prime minister, who once told him that a person knows he is a leader when he realizes that there is no one to answer his questions and that he has to answer them for himself. “The more you have responsibility,” Bernabè said, “the more you need to be alone.”

When he took over as the head of Eni, Bernabè says, he knew as an economist that there was a better way to run the organization, a way that would be fairer to a vast majority of Eni’s employees — honest men and women who had the ability to transform the organization but whose lives were undermined by a minority who swayed with the political winds and lined their pockets at every opportunity. He wanted to show that the business could be run ethically and profitably.

His method was to take Eni out of the hands of government and put it in the hands of the market.

It was the correct decision, but it was not a popular one.

While Margaret Thatcher’s Britain had by then wholeheartedly embraced privatization, sloughing off huge chunks of its state machine onto the market, Italy was not yet so enthusiastic. Bernabè had to fend off frequent calls for his resignation from Socialist politicians before Eni first offered stock to the public in November 1995.

D

Briefings on Talent & Leadership

A different style of life Despite having spent almost 20 years as a CEO, Bernabè still has an owlish academic manner, not surprising perhaps in someone who for a couple of years early in his career was a senior economist with the Organisation for Economic Cooperation and Development in Paris. He is analytical and unflappable, a million miles from such flamboyant Italian businessmen as Gianni Agnelli and Silvio Berlusconi.

Bernabè may be a strong leader, but he is also a modest man — modest about his own achievements and modest in

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his lifestyle. He admits to being married and having two children, but his family is never seen in public. And for good reason. He himself has been the target of threats in the past.

His upbringing was modest too. He was born in the village of Sterzing, near the town of Vipiteno in the southern Tyrol.

Vipiteno is a stop beside a main road and a railway line that wind their way up the Brenner Pass to Innsbruck and the German-speaking world beyond. His father worked on the railways there. Pine trees and Alpine snow provided the backdrop to his childhood, not olive trees and the Mediterranean.

It makes for a particular type of Italian.

“I don’t play golf,” he said. “I have no social life whatsoever.

My wife hates social life too.” Despite living in Rome, there is no dolce vita for the Bernabès.

His one indulgence is modern art. He is pro bono chairman of the Venice Biennale and chairman of the Mart Museum, the Museo d’Arte Moderna e Contemporanea in Trento and Rovereto, about 90 miles south of his birthplace. One of the best available photographs shows him sitting in front of one of Andy Warhol’s Marilyn Monroe prints. He has no art collection of his own because that would present a conflict of interest. “I could profit from my position,” he said.

His modesty is not without its own rewards. “I could go back to a normal employee’s position tomorrow morning,” he said frankly, “without sacrificing my standard of living.”

Living on the volatile interface between Italian politics and business, he has always understood there were risks.

H

Today’s telecommunications challenges His second coming at Telecom Italia has found Bernabè at the head of a very different organization. Olivetti is now just a small subsidiary, struggling to keep up with the American and Asian giants of the I.T. industry. And there is a big new partner on the scene. In 2007, a group of investors led by Telefonica, the Spanish equivalent of Telecom Italia, bought a 22.4 percent indirect stake. This brought considerable benefits to both companies in terms of joint purchasing and shared cost savings in Europe.

The savings helped lower Telecom Italia’s net debt last year below €30 billion for the first time in over a decade. (It stood at €37 billion when Bernabè took over.) And there is yet more to come. He is currently focused on cost cutting and streamlining the business. Italy was at the forefront of the enthusiasm for mobile phones in the 1990s, and it now has the largest percentage of households in Western Europe that rely solely on mobile service (30 percent). But it is a mature market and competition is fierce. Telecom Italia runs neck and neck with Vodafone Italia; the business’s famously fat margins are a thing of the past.

What is required now is not headline-grabbing stuff but just the sort of job that Bernabè is so well-equipped to handle.

In the past, the Italian press has called him barra dritta, a steady

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hand on the rudder, and that’s what is needed. When he was invited back to Telecom Italia in 2007, he told the board not to expect fireworks. He has been true to his word.

What excitement there is — the company’s main hope for growth — lies in Latin America. Telecom Italia owns 67 percent of TIM Brasil, the second-biggest mobile operator in a country that is to host the World Cup in 2014 and the Olympics two years after that. And it has a 22.7 percent economic interest in Telecom Argentina, that country’s leading fixedline operator. Recent results from these operations have been exceptionally good. Whereas in the first nine months of 2012

Bernabè left Eni because he felt he had become slow to change. “I came to a point where I was wanting to hear the same things from the same people,” he said. It had all become habitual, and he is the first to acknowledge that this is dangerous.

EPA/Daniel Dal Zennaro

domestic revenues and earnings both fell from a year earlier, in Brazil they grew by 11 percent and 9 percent respectively, and in Argentina by 20 percent and 8 percent.

But there are potential obstacles to further growth in these markets. In the first place, despite their cooperation at home, Telefonica and Telecom Italia compete fiercely for business in Latin America. TIM Brasil’s closest competitor is Vivo, which is owned by Telefonica. Bernabè says there are Chinese walls between the companies’ European and Latin American operations. Nevertheless, regulators in Argentina and Brazil watch keenly to see that there are no restrictive practices. Aggressive moves by regulators in recent months have raised the specter in both markets of further government intervention.

In the longer term, though, Bernabè believes that his company’s growth depends on reseeding the very turf on which the telecommunications game is currently played. Telecommunications, he says, used to be a business where services and infrastructure went together. But technological development has led to a dramatic separation of the two, and this has allowed a host of new rivals to enter the business — rivals like Skype and WhatsApp (which has done for messaging what

Skype has done for voice calls, and in the process grew more than fivefold in 2012 alone).

These “disruptive innovators,” to use the terminology of the Harvard Business School professor Clayton Christensen, who first described their power to overturn an industry in his book “The Innovator’s Dilemma,” have been much on Bernabè’s mind of late. He talks of the “parasitical” way in which they ride on the back of networks maintained by traditional companies like Telecom Italia. When storms bring lines down, somebody has to mend them. Bernabè has 25,000 people on the job; Skype has no one. “Skype is using our network,” Bernabè said, “and not paying for it.”

At the heart of the problem lies the 1988 agreement of the International Telecommunication Union, based in Geneva, spelling out the first international telecommunication regulations. Much attention was paid at the time to the trading of international voice traffic, but very little to data traffic, which was then virtually nonexistent. Now the reality is very different, but the international regulations are not. A new I.T.U. conference on the subject of data traffic (the first since 1988) was held in Dubai in December 2012, although nothing much was decided. Bernabè’s hope is that sometime soon the parasites will be made to pay.

Disruptive change of the kind brought about by these upstarts means “you have to completely rethink the way you do business,” Bernabè said. That is why Telecom Italia is now considering separating its network from the rest of its operations. The board is in the early stages of discussions with possible partners regarding this strategy, which is trailblazing for a traditional business like Telecom Italia.

Bernabè has surprised critics and fellow business leaders before — and he will have to do it again. He is 64 years old and works in an industry that is fast-moving and for the most part led by people much younger than he is. But he is keenly selfaware and cognizant of his own limitations. He stayed for seven years at Eni and has now spent five at Telecom Italia. He says that he left Eni because he felt he had become slow to change.

“I came to a point where I was wanting to hear the same things from the same people,” he said. It had all become habitual, and Bernabè is the first to acknowledge that this is dangerous.

Such self-reflection among leaders of global enterprises is as refreshing as it is rare. But telecommunication companies today are mature businesses fighting to defend and increase their turf against all comers, not just start-ups. In cases like that, brashness, bravado and even youth may not be as important as the power of an acutely analytical mind. And that is precisely where Bernabè excels. What he did for Eni, he is in the process of doing again.

Tim Hindle is founder of the London-based business language consultancy Working Words. He was a contributor to The Economist for 25 years and was editor of EuroBusiness in the 1990s.

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GOVER C O R PO RAT E

1.

Independent and informed directors can help a company deliver

Building Boards That Perform by rob e rt e . h a l l ag a n a n d d e n n i s ca r e y

W

hen the concept of independent boards was developed, it was envisioned that boards would not just protect shareholder interests but also become a strategic asset and source of continuous competitive advantage for their companies.

As the years progressed, however, some boards fell short, failing to add or even damaging shareholder value. Other boards performed admirably as fiduciaries and monitors of performance, but little more. And then there is the gold standard: elite, high-performing boards that do much more than mundane corporate caretaking.

The National Association of Corporate Directors Blue Ribbon Commission on Board Evaluations and Board Effectiveness, co-chaired by Ken West and Robert E. Hallagan, addressed this in 2012. The commission decided early that boards could not be evaluated in a vacuum, seeing a need for a framework for high-performance boards to benchmark.

That framework includes inner and outer circles. It starts at the core with the board’s commitment “to be a valued asset of the company, measured by the contribution we make — collectively and individually — to enhance shareholder value,” and ends in the outer circle — a company that is maximizing long-term shareholder value.

Every activity within the circles must contribute to organizing a board in a manner that ensures maximum shareholder value. It also clearly establishes the premise that if a company is a chronic underachiever, the board must be held accountable.

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The key elements in our framework are based on common sense, nothing revolutionary. Though the standards are simple in concept, even a potentially high-performing board can become derailed if it fails to pay consistent attention to the details. It is the role of the governance committee and board leader to ensure a relentless focus on all elements.

The Right People What competencies, diversity of thinking styles and interpersonal skills go into making a board that stands out as a top performer? Companies’ strategies change and so must the talent on the board. Our approach is rigorous and similar to starting a search for a new CEO. The starting point is the strategic plan. What will drive shareholder value? What does the company have to do extraordinarily well? What are the toughest challenges to execute, and what are the biggest and most complex decisions? From this analysis we can project what the board agenda will be, how a board will add value, and, more specifically, the skills that will add the highest value on a continuous basis.

Two examples of boards we have built recently illustrate this point: Delphi — After four agonizing years, Delphi came out of bankruptcy with new owners: two highly successful hedge funds — Elliott and Silverpoint — and General Motors. They were excited about building a “best in class” industrial products business and wanted a board to bring this perspective to

Korn/Ferry

NANCE superior shareholder value in this fast-changing digital era. the company in a respectful manner. Once we convinced Jack Krol, the former CEO of DuPont and chairman of Tyco, to serve as non-executive chairman, we continued around the table with executives bringing an extraordinarily diverse set of skills.

All met three critical requirements: • a markedly successful history of making good decisions, • interpersonal skills that thrive in a team environment to maximize group dynamics, • time to be fully engaged and enthusiastic about Delphi.

The board has four successful CEOs from companies that specialize in industrial products; world-class technology and human resources executives skilled at innovation and talent management; a highly respected industrial products CFO, and a former Goldman banker, as well as executives from Europe and Asia. Delphi is clearly on a path to bolster shareholder value, and we can proudly give a long list of valueadded contributions by the board.

Lehman Brothers Holdings — Another powerful example is Lehman Brothers, the largest bankruptcy in history and a black eye for the financial community. As a requirement to emerge from bankruptcy, courts ordered the holding company to appoint seven new directors to oversee the liquidation of Lehman assets. A committee of stakeholders from around the world was formed to select the seven. This large and diverse search committee had to spell out a list of skills that could maximize the $70 billion of assets that would be used to pay creditors. Before candidates were reviewed, the exact role of the board was debated and the complexity of the task fully vetted by stakeholders. After more than 25 candidates presented their backgrounds, the committee projected how each could add value and complement others on the board. Next ques-

Briefings on Talent & Leadership

tions: Who would fit best in the team dynamics and who had the time and enthusiasm to become fully engaged? We wanted no “body fat” — everyone should be pulling their oar with the same intensity. Now one year later, the stakeholders benefit from this high-performing board.

Most boards obviously do not have a fresh start like Delphi and Lehman, but each board should have a succession plan that calls for constantly examining future challenges

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Right People

Right culture

Right structure

the board’s commitment:

To be a valued asset of the company measured by the contribution we make — collectively and individually — to enhance long-term shareholder value.

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Right issues

Right information

Right process

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It’s the Right People: N.A.C.D. Panel Concludes Robert Hallagan of Korn/Ferry International moderated the opening panel for the N.A.C.D.’s annual conference on building high-performance boards in October 2012, meeting in National Harbor, Md. Hallagan, the vice chairman and managing director of board and CEO services at Korn/Ferry, led the discussion, outlining the findings of the N.A.C.D. commission.

John A. Krol, chairman of Delphi Automotive and director of Tyco International; Owen Thomas, chairman of Lehman Brothers Holdings; and Curtis J. Crawford, director of Xylem, provided real-life examples of the commitment to top performance.

Jack Krol, well known for rebuilding Tyco after the scandal that led to a prison sentence for ex-CEO Dennis Kozlowski, is the former chairman and CEO of DuPont. He

hat distinguishes a high-per-

Their conclusion: Boards that are com-

forming corporate board of di-

mitted to self-evaluation, which expect

rectors from the also-rans? A

was called upon more recently to help Delphi Automotive emerge from bankruptcy.

“After you recruit the right people for the board, you need to tell them what a high-­

to be held accountable with the goal of

performance board looks like,” Krol said.

blue ribbon commission of the National

achieving high performance, deliver supe-

The commission has drawn a map for mov-

Association of Corporate Directors set

rior shareholder value over the long term.

out to answer that question.

With 800 directors in the audience,

and identifying talent gaps. Chemistry and collaboration are two of the most important drivers of a high-performing board.

Attracting the right talent for the board is difficult. Companies must be clear about what will add value and apply the same discipline in succession planning that they demand for the company’s leadership team. “We could not attract the right talent, so we settled for” — is a statement not made by highperforming boards. Once the exact talent is identified, they are likely to wait one — sometimes two years — before the right director becomes available

Right Issues Highly motivated talent must not be wasted. Imagine assembling these all-star Delphi and Lehman boards and then having board meetings consist just of management presentations or random topics. Sarbanes-Oxley and now Dodd-Frank have unfortunately made many boards averse to risk, spending too much time on compliance issues.

It is the responsibility of the board leader working closely with the CEO to be sure the agenda is rich in content — with a majority of time dedicated to topics most closely aligned to

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ing forward: Make the commitment to be a high-performance board by focusing on

Paul Morse

W

Left to right: Robert E. Hallagan, John A. Krol, Owen D. Thomas and Curtis J. Crawford.

what drives shareholder value: sophisticated and prudent risktaking and outsmarting the competition.

The Right Information Unfortunately for shareholders, many companies have consistently been low performers. Is it possible that their board members want to do a good job, but are not getting adequate information? Korn/Ferry researchers are trying to understand how information barriers affect a board’s performance.

High-performing boards demand more than financial numbers, using a balanced scorecard approach that includes critical elements such as product and service quality, customer trends, talent, competition, innovation, total enterprise risk, ethics and corporate culture. The right information supports focusing on the right issues.

At the annual conference, N.A.C.D. President and CEO Ken Daly raised the issue of asymmetrical information, noting that boards may get incomplete or incorrect guidance from company executives. Directors relying solely on management’s word may not have the full details to make wise and informed decisions. In various case studies of troubled com-

Korn/Ferry

• the right people, • the right culture, • the right information, • the right issues, • the right process, • and the follow-through.

Krol cautioned against relying only on the director candidates’ paper credentials.

“Pay close attention to their record of accomplishments and how they work with others. Talk to them. Get to know them. Will he or she be a team player? ” Owen Thomas became chairman of Lehman Brothers Holdings in December 2011, after heading Morgan Stanley’s Asian and real estate divisions. Thomas and the other six board members are working to close the books on the largest corporate bankruptcy in history. Part of that task is to return some portion of Lehman’s $70 billion in illiquid assets to claimants who are owed $350 billion.

“Of our seven-member board, only two have full-time jobs,” Thomas said. He and his fellow board members have extensive experience in the types of assets that Leh­ man owned, Thomas’ expertise being in real estate. “We are an engaged group of directors. We have a finite mission. We’re not in business in perpetuity. We are using each

director’s expertise to work through these

logue is too important and strategy today

assets.”

is too demanding for directors not to have

Curtis Crawford was a member of the ITT board when the conglomerate decided to split into three companies. “We named

“The chemistry between the CEO and chairman and lead director has to be good,”

three new CEOs, all promoted from within.

Krol said. Both need a shared commitment

We had an inventory of talent to draw from.

to high performance. “If there is not agree-

Working closely with our recruiting firm,

ment on that commitment, there is very lit-

we recruited approximately 15 new direc-

tle progress that can be made.”

tors for the new boards, drawing on a half-

Thomas says the Lehman Holdings

dozen former board members for ITT.”

board takes pains to use its talent wisely.

Crawford said 30 percent of the new

“We have a six-month window to do our

boards are minorities or women, and 10

work. You can be sure that we quickly iden-

percent live, or have lived extensively,

tified what each of us should be doing.

outside of the U.S.

We meet weekly. We keep the agenda tight,

“Lessons learned for us were, ‘Work closely with your recruiter. Identify the critical characteristics of the board members for each board and make them non-

picking the right issues. We can’t waste anyone’s time.”

Before joining the Lehman Holdings board, none of the directors knew one

negotiable. Don’t look in the same old

another. Hallagan asked how they came

places for talent,’ ” said Crawford.

together to form a strong work group.

“Had we limited our search to the peo-

“It’s the little things you do,” said Thomas.

ple we know, we would have missed out on

“We’ve gotten to know each other as people.

some amazing talent,” Crawford said. “You

We had an outing with our wives. And the

have to commit to spend quality time with

seven board members have dinner together

your recruiter to zero in on opportunities.”

once a month without any program.”

Hallagan emphasized that once the tal-

Curtis says the process requires much

ent is in place, high-performing boards take

more of the directors than merely touring

it to the next level. “You’ve got to help di-

a worksite together. “All of us consider our-

rectors learn the company. The board dia-

selves new.”

panies, CEOs have been found to have withheld information from their boards.

Given their responsibility for oversight, directors need to acknowledge that asymmetric information is inherent in the boardroom and create a process to identify when that risk has become too high. Directors must ask themselves if they are getting the information they need to make decisions. If not, do they ask for additional information and receive it? As one director told us, like Ronald Reagan, we need to “trust but verify.” On occasion boards will need to seek outside information or analysis. The best boards use this privilege judiciously.

At the same time, directors cannot go overboard. Providing additional information eats into managers’ schedules.

CEOs can become concerned that supplying more information may be blurring the line between management and oversight. “Nose in, fingers out ,” meaning it’s O.K. to be inquisitive, but it’s not O.K. to run the business, is a good reminder for board members.

Directors recognize the information-rich world in which they operate. Each year it becomes more challenging to obtain, study and understand relevant information . As we tell

Briefings on Talent & Leadership

a keen understanding of the company.”

directors, it’s important to understand the company’s strategy, its competitive position and the environment in which it operates.

The Right Process As we continue to move through the framework, the heavy lifting is done, but flaws in the board’s process, structure and culture can still hobble performance.

Important process considerations include: • Continuous

clarification of the board’s role versus that of management — Directors must know where the boundary lies and understand that the line sometimes shifts in crises.

• Decision-making

authority —Too little authority may render the board ineffective, and misunderstandings can cause unnecessary friction with management.

• CEO/board

relationship — What is being done to ensure this is a trusted, respectful and open relationship? Is a thoughtful process for evaluating, mentoring and developing CEOs in place?

• Meetings

— Are the right items on the agenda, in the right order, with quality time allocated for discussion? Is the

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63

quality of time for hearing presentations low compared to active discussion?

• Executive sessions — Are closed-door meetings used effectively? Do they include feedback to the leadership team?

• Board succession planning — High-performance boards are constantly planning for succession of leadership talent.

The Right Structure If you had the luxury of building a new board from scratch, what structural components would you consider to optimize group dynamics, decision making and performance?

Size — As a general observation engagement, accountability and decision making are best in a small board environment.

This necessitates no room for “extras” and that each board member has skills and competencies that can add value in multiple areas.

Terms, Age Caps, Term-Limits — There are always exceptions and each board must leave room for flexibility, but there is also strong evidence that continuously refreshing a board with new “high-performance” thinkers is a “best practice.”

Long-term continuity and institutional knowledge are precious, but it is also worthwhile to debate whether, for example, the second 10 years a board member serves are as valuable for shareholders as the first 10 years.

Board Leadership — Commitment to strong, engaged, independent leadership is a requirement for high-performing boards whether it takes the form of a non-executive chairman or lead director. Equally important is clear definition of the role and selection of the right leader. Some board members do not make good board leaders. Knowing this and establishing a thoughtful process to ensure the board has strong choices is important. We have seen numerous times when boards were not prepared for leadership succession, and picking the wrong leader has created serious problems.

H

i

gh

e -p

rfo

rming orga

ni

za

ti

o

Right People

Right culture

Right structure

the board’s commitment:

To be a valued asset of the company measured by the contribution we make — collectively and individually — to enhance long-term shareholder value.

n

Right issues

Right information

Right process

s

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Q2.2013

u

pe

ri

va or shareholder

lu

e

Committees — We believe committees are an important part of the board structure. Since 2003, the Sarbanes-Oxley Act brought about the requirement for independent audit, compensation and governance committees. We suggest, however, that the effectiveness of each committee needs to be evaluated.

All boards have audit committees, yet we have seen numerous midcap companies assign the compensation and governance committee responsibilities to the full board, which has resulted in enhanced efficiency and information flow.

Compensation — We want a board that is highly motivated to ensure a company is on the path to maximize longterm shareholder value. Ideally, we want this board to be an important part of each director’s activities, not forgotten between meetings. If we expect this level of engagement by successful executives — who have choices — compensation must be motivating and aligned to performance.

Right Culture As we complete the framework, we arrive at the glue or “energy drink” that allows highly skilled executives to thrive and work efficiently as a team. It is a culture of trust and openness, all egos in check and all opinions heard and respected. Critical issues are surfaced, thoughtful debate and disagreement is common and decisions are enhanced — the leadership team is excited by the energy at board meetings and motivated by their debate and encouragement. Skills and competencies on the board are continuously aligned to the future challenges of the company, and there is no entitlement mentality. All board members take their responsibility to shareholders seriously and feel they must “earn the right” to be reelected.

As role models for the company’s leadership team, they are in a constant mode of self-examination and continuous improvement and want rigorous board evaluations done on a regular basis. They strive to be a “best in class” board and want to stand tall directly in front of shareholders.

All this is common sense. But having observed hundreds of boards we know only a small percentage are truly high performing and a continuous source of competitive advantage; many boards are doing a majority of things right, but few are “hitting on all cylinders” all the time. It is hard work that demands focus, commitment and enlightened leadership. It is a journey as much as a destination. N.A.C.D., the world’s premier education organization for directors, and Korn/Ferry are dedicated to continue our work on high-performing boards and are delighted by our clients’ commitment, pride and intense desire to improve. The art and science of building a high-­ performing board is evolving. We are learning from each other and look forward to our engaged conversations.

Robert E. Hallagan is managing director of board and CEO services for Korn/Ferry International, Inc. Dennis Carey is vice chairman of board and CEO services of Korn/Ferry International.

Korn/Ferry

2.

Corporate Governance 2.0:

The Boardroom Collides with the Digital Age by m i n a g o u r a n

Christopher Sickels

R

apid advancements in technology continue to alter the foundations of business, redefining customer relationships, recalibrating business models and shifting strategic imperatives. According to the 2012 Global CEO Study, conducted by I.B.M., a majority of CEOs (71 percent) regard technology as the No. 1 factor influencing their organization’s future over the next three years. Technology is considered a bigger external change agent than shifting economic and market conditions.

Digital megatrends such as big data analytics, cloud computing, mobile commerce, smartphone penetration and social media are now embedded in the core of business. More importantly, these trends are critical to competitive advantage. As with any fundamental change of this kind, boards must play a central role in ensuring that companies are accurately evaluating risks and opportunities.

However, if you walked into a board meeting in any major city in the world, the chances are that few directors around the table would be well-versed in the digital world. The vast majority would be men in their 60’s, with experience in familiar topics such as risk, finance, accounting, marketing and operations. This raises the question: Is it time to reconsider boardroom composition in light of the digital economy?

Capturing value from the digital economy can be difficult, and it remains uncertain how these platforms will evolve.

What is clear is that the rules of consumer engagement have been radically altered. To forge closer connections with customers, partners, stakeholders and employees, companies will need to remain highly agile, adapt quickly and ensure they are using technology to the best possible advantage. It stands to reason that a board’s core skills will need to mirror this change.

A cursory look at the numbers demonstrates the extent to which digital trends are now a global phenomenon. More than 200 million iPhone and Android smartphones now are in consumers’ hands, and demand shows no sign of slowing. Some 41 million software applications are downloaded every day, and social networking has expanded exponentially.

While these trends are not altogether new — but rather the culmination of over 50 years of disruptive technology — they have dramatically affected distribution channels, altered business models and placed the power firmly in the hands of the consumer.

Briefings on Talent & Leadership

While the board is not responsible for putting mechanisms into place to address these issues — that is the role of the executive team — they are responsible for taking a strategic view of how technology trends will shape their company’s future. Boards must understand that business strategies are now inextricably linked with digital strategies. They must be able to evaluate current trends while anticipating future innovations.

Are boards capable of fulfilling this task? Can the average board accurately assess the nuances of the digitization phenomenon? Is it time to inject “generation Y behaviors” into our boardrooms to understand the vast disruptions and opportunities associated with digitization? All companies must now ask: How can their boards get up to speed — quickly — about these new technologies?

Future-proofing the boardroom It’s not surprising that many chairmen and senior executives think boards should play a more active role in discussing

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65

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One size does not fit all The challenge for most boards is that “digital talent” is an ambiguous term, encompassing a vast array of domains.

Social media, e-commerce, mobile advertising and online publishing are just some of the segments, each possessing highly heterogeneous talent with divergent skills and com­ petencies. How do boards choose the right digital talent?

The talent requirements will vary greatly across industries. There is a danger of companies reacting hastily without considering what experience and skills are needed. By assuming all “digital talent” is created equal, boards could misun-

Christopher Sickels

digital strategy. Many see an urgent need to infuse digitally knowledgeable talent into the boardroom. With the average age of directors in S&P 500 companies at an all-time high — up from 60.2 in 2001 to 62.4 in 2011 — there is a danger that older directors might be out of touch with issues surrounding new markets emerging from the digital age.

Many companies are acting fast to address this digital capabilities gap at the highest levels. In those sectors where digital technology matters most — either because it’s the core of the business or because it’s disrupting the core — digital boards are now the status quo. Technology companies such as Amazon, Dell, Hewlett-Packard, Google, I.B.M., Apple, Cisco, Intel, Microsoft and Oracle predictably have boards dominated by directors with digital expertise.

A shift is also palpable in sectors such as hospitality, consumer goods, retail, distribution and supply chain. A quick look at the boards of Pepsi, Sysco, Ingram Micro and FedEx reveals how these companies have jumped in with both feet to recalibrate the composition of their boards.

Many have recruited digital CEOs to their boards — the Holy Grail being those who possess both digital expertise and C-suite status. Coca-Cola recruited Bobby Kotick, the CEO of the world’s largest video game publisher, Activision Blizzard, while the New York Times appointed Joichi Ito, an entrepre-

neur and former CEO of Japan’s first commercial Internet provider. Even the notoriously traditional Berkshire Hathaway has board members with expertise in technology. Warren Buffet clearly understood the centrality of this knowledge, recruiting former Microsoft CEO Bill Gates to the Berkshire board in 2004.

Other firms have widened the talent search, recruiting younger, non-CEO candidates. Wal-Mart added 37-year-old Marissa Mayer, a Google vice president who has since been appointed the CEO of Yahoo. Disney nominated Facebook’s 40-year-old COO Sheryl Sandberg. eBay inducted Katie Mitic, then with Facebook, while Starbucks added the 29-yearold CEO of social media platform Hearsay Social, Clara Shih, to augment their social media expertise.

There is certainly recognition that what happens online is fast becoming central to the governance equation. Social networks have reached the point where their impact on corporate risk, reputation and operations cannot be ignored in the boardroom. Indeed, information gleaned from platforms such as Facebook, Twitter and LinkedIn can provide valuable insight into the success of corporate strategy. A new paper from the Stanford Business School — “Monitoring Risks Before They Go Viral” — suggests that this information should now supplement traditional key performance indicators that directors use to evaluate senior management.

The paper points to how Procter & Gamble developed a digital “dashboard” that uses Bayesian analysis to scan tweets, blog posts and other social media. This information is then used to summarize consumer sentiment and measure brand strength. P&G Chairman and CEO Robert McDonald reportedly uses the dashboard to review corporate brands. This combined use of social media and real-time data analytics is just one example of how digital technology is influencing a modern company’s decision making.

Korn/Ferry

derstand the complexity of the talent market and fail to zero have undergone technological innovation and disruption in on what is needed. could prove to be the most valuable at board level. Even withThe first step is for the board to articulate how technology out having reached C-suite status, entrepreneurs in the “new is affecting the business. Once the company’s specific digital economy” have tangible experience managing risk amid wide-­ opportunities and risks have been identified, chairmen can scale technological change. assess what skills and expertise would add the most value at Ageism: an outdated prejudice or a necessary board level. By knowing how technology supports company risk-management value? strategy, board members and executives can make the search for talent more precise.

Much is to be gained by broadening the candidate pool. It faCorporate leaders must differentiate between the types cilitates the creation of genuinely diverse boards; not just in of digital talent needed to sit on a board versus the digital exterms of gender, which is the low-hanging fruit of diversity, perts joining the executive team. A mobile-commerce expert but also in terms of age, background, skills and ethnicity. If may be recruited to the executive team, but it is an informed companies need to be agile and diverse to capture the opporboard that initially recognizes the need to diversify their tunities of a digital age, boards need to have sufficiently varproduct offerings to alternative distribution channels. While ied profiles to deliver the broad spectrum of experience and the executive team needs talent able to shape and develop knowledge required. strategy — both in anticipation of and in reaction to new Younger boardrooms undoubtedly help augment diversity. Their true value, however, comes from the untechnologies — the board must be able to assess it. deniable fact that this demographic grew up Given that innovation and disruption inin the digital age. They therefore intuicreasingly drive senior executives’ growth tively understand the new economic agenda, boards with the ability to moniIn the search landscape. After all, e-commerce is tor these decisions could prove to be barely 20 years old. These “digital the crucial difference between comfor digital talent, it natives” — who have lived and panies that create superior sharemay be necessary to holder value and those that don’t. breathed the new economy most To debate, test and approve new of their professional lives — may recalibrate the established digital strategies, boards need be two or three decades younger members with the aptitude to help than a typical board member. They benchmarks of what frame the discussion. are nonetheless causing ripples in an ideal director the business world.

Short supply — High demand Examples include Mark Zuckerlooks like. berg (age 28) of Facebook; Ben SilberThe challenge for boards is to find canmann (30) of Pinterest; Jack Dorsey (35) didates with technology acumen alongside of Twitter; David Karp (26) of Tumblr; Jeremy the conventional behavioral traits associated Stoppelman (34) of Yelp; Daniel Ek (29) of Spotify; Salar with a director role. Ideally, candidates require digital Kamangar (35) of YouTube and Google; Dennis Crowley (36) knowledge layered on top of broad operational experience of Foursquare; Andrew Mason (31) of Groupon; Sal Khan (35) and a successful executive career. The best directors will be of Khan Academy and Alison Pincus (37), co-founder of One familiar with technology disruption and innovation but also Kings Lane. possess wisdom, maturity and perspective.

Appointing “digital natives” to the board, however, raises This talent pool is in critically short supply. While the the tricky issue of ageism. As companies grow more riskchanging of the generational guard will mean this shortage averse in the current slow economic climate, they want exwill dissipate over time, boards still face the immediate perienced hands at the board level to deal with short-term challenge of ensuring growth and success through the risks and challenges, rather than adopting a more long-term transition. approach.

Recruiting directors from the technology, digital and eIn this context, how do companies integrate younger, commerce industries could therefore mean hiring candidates fresh digital talent into their boards? Is it an acceptable trade­ with unconventional backgrounds. Many individuals with off to have talent who will push the boundaries but who may digital expertise have not achieved the same stature as tradilack the maturity needed to function effectively at board tional candidates, and for most it will be their first board aplevel? How will younger, less-experienced directors mesh pointment. In the search for digital talent, it may be neceswith seasoned directors in the boardroom? Will there be sary to rethink what an ideal director looks like. enough mutual respect and understanding to have effective Atypical candidates with experience in industries that

Briefings on Talent & Leadership

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67

boardroom conversations? that technology is not a stand-alone issue, but an integral part Often the biggest challenge is bridging a substantial genof successfully running a company. Since the introduction of eration gap. Experienced directors can be skeptical of unusuregulation such as the Sarbanes-Oxley Act, directors are now ally young candidates and often question their value at board accountable for the financial health of a business. Likewise, level. Similarly, younger Silicon Valley-type executives often all directors could soon be responsible for the digital direction regard older members as overly conventional. Given that of a company. much of this talent thrives in small, nimble, entrepreneurial Recruiting digital talent will certainly accelerate this organizations, they may question the utility of joining larger broader re-education process. With the entire board regularly corporations. These latent prejudices can prevent productive exposed to their skills, high-level knowledge will often be conversations, highlighting how managing a diverse transferred by the simple process of osmosis. Chairboard requires tremendous skill and sensitivity men could also consider “technology immerfrom the chairman. sion” sessions, similar to standard risk or Boards Indeed, the chairman is instrumental accounting training. There could come in ensuring that each director fulfills a time when technology-focused must seek out digital their potential and delivers their best. board committees are the status quo.

This has always been the case, but it is talent who can help Diversity and Agility — magnified as diversity among board the silver bullet? anticipate innovation members increases. Less-experienced directors need subtle coaching, not Governance in the digital age will and seek out the only during the on-boarding process likely be a process of trial and error. but on a continual basis.

Some firms will get it right; others “signal” among the will not. There is no manual for the “noise.

The bigger picture future and no guarantee of a successful strategy. What is certain is that the contriRecruiting digital talent at board level is cerbutions, value and objectivity that directors bring tainly expedient in improving governance amid acto the board are what count. Non-executive directors need to celerating technological change. However, it is also wise to be assessed based on results, leadership and their delivery of step back and understand that change is not new. The pace of shareholder value, none of which has any direct relation to current change is unprecedented, granted, but radical change age, gender or ethnicity. itself is perennial.

We also know that a range of reinforcing strategies will Technological innovation has been disrupting businesses ultimately encourage more frequent, focused and informed for decades. While trends such as social media and smartdigital discussions at board level. Adding talent with a deep phone penetration are certainly unique, it is not the first time understanding of the digital landscape will be vital. Simultacompanies have adapted to game-changing innovations. The neously, encouraging veteran directors to get smart about tenets of corporate governance remain largely the same. technology will help augment long-term success. Together, “Digital transformation” is about a delicate changeover bethese approaches will create an environment where firms retween the old and the new, a shift that involves managing risks, main flexible enough to recognize important technological identifying opportunities and setting strategic goals. This is developments and incorporate them into business models. not a unique governance challenge: It has always been — and The advent of the digital age reinforces the importance of will remain — the raison d’être of any board. It is the duty of ensuring true diversity at board level, reflecting the markets, the board to see beyond the details of today and help frame the global locations and customer demographics in which a busiissues for the CEO in a holistic and forward-thinking fashion. ness operates. This is true regardless of what technology lies There is a tendency to overestimate change in the short around the corner or what new trends reshape customer beterm and underestimate it in the long term. “Miracles of comhavior. Boards must be prepared for constant recalibration munication” such as the Telex and fax are as redundant today in order to lead in this ever-changing world. as the telegraph before them. In the same way, current technology trends will undoubtedly evolve in ways unimaginable.

Boards must therefore seek out digital talent with diverse Mina Gouran is a senior client partner in Korn/Ferry Whitehead Mann’s experience and agile minds, who can help anticipate innovaLondon office and a member of the firm’s CEO and Board Services team. tion and seek out the “signal” among the “noise.”

Since 2001, she has focused on CEO and board member searches and At the same time, it is the duty of the old guard on the board assessments on a national and international basis. Gouran has boards to raise their game, re-educate themselves and become extensive management and board experience, including senior-level familiar with digital megatrends. All directors must realize experience managing business information services.

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In

Review Don’t Just Do Something, Sit There

W

e live in a VUCA world (an Army War College acronym that stands for Volatile, Unpredictable, Complex and Ambiguous) and leaders are under more pressure than ever to find a successful route through this daunting environment. There is no shortage of leadership literature aimed at prescribing actions leaders can take to successfully meet the VUCA challenge. But now comes a new book from Kevin Cashman that suggests a slightly radical approach: No action. Rather, pause.

Cashman, a senior partner at Korn/Ferry International and author of “Leadership From the Inside Out,” defines pause as “a universal principle inherent in living, creative systems. It is part of the order, value and growth that arises from slowing down and stepping back. In physics, it is the Second Law of Thermody-

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namics: ‘As activity lessens, order increases.’ ” In his new book “The Pause Principle: Step Back to Lead Forward” Cashman suggests that savvy, successful leaders are willing to embrace a concept that seems anathema in organizational settings today: taking a specific and powerful moment to stop, reflect, consider and deliberate before taking action.

“The Pause Principle is the conscious, intentional process of stepping back, within ourselves and outside of ourselves, to lead forward with greater authenticity, purpose and contribution,” Cashman writes.

Sleep, the ultimate example of pause, is a natural, transformative process which scientific research extols as vital but severely lacking in our current whirlwind professional environment. “What sleep is to the mind and body, pause is to leader­ ship and innovation,” Cashman writes. Much has been written about the difficulties leaders encounter trying to operate in the pressure-packed 24-hour global marketplace. Quoting Nobel Prize-winning psychologist Daniel Kahneman, from his latest bestseller “Thinking, Fast and Slow,” Cashman echoes Kahneman’s admonition that fast thinking can lead to limited options in high-stress situations, forcing leaders to rely on opinions and impressions that make them blind to what they don’t know.

In this slim volume (132 pages), Cashman takes what might seem like a one-note tune, and builds a convincing case, through examples and insight, into the value and rewards of pause. He starts out by suggesting a list of five Pause Points that provide a way to instill “a consistent, intentional manner for reflection by:

• Building self-awareness and

clarity of purpose

• Exploring new ideas

• Risking experimentation

• Questioning, listening, and

synthesizing

• Challenging the status quo, within

and around us.

Though it may smack of New Age folderol, the idea of CEOs and other organizational leaders pausing through meditation, daily runs, yoga, retreats and any number of other effective means to reconsider the consequences and direction of their actions is actually catching on. Cashman, a leadership consultant and practitioner himself, recalls a trip he made with his wife to visit the Dalai Lama and sacred sites in India.

Frantically focused on getting the manuscript for this book completed, Cashman wrestled with the idea of forgoing the trip. But convinced of its value, the couple embarked on the journey, only to be felled by illness when they reached Delhi. This “forced” pause caused Cashman to acknowledge that “life had other plans; life wanted us to slow down...to stop.”

Instead of being discouraged by missing the Dalai Lama, Cashman experienced a week of some of the most creative and prolific writing of his career. Pausing, forced or voluntary, created the space and time to embrace what mattered most.

The book is divided into three parts: growing personal leadership, growing others, and growing cultures of innovation, all by embracing the pause principle. The main strength of Cashman’s volume is the use of timely examples to illustrate his point: show rather than tell.

James, a successful CEO of a multi­ billion-dollar global manufacturing

Korn/Ferry

Hal Mayforth

organization, seemed to have it all.

He was strategic and innovative. But he found that the more he pushed his people, the less responsive they became. They had come to realize that James liked to do it all himself.

He preached innovation and collaboration but his behavior said otherwise. With some executive coaching, James began to realize what was happening and what his role was in the process. He saw the incongruence of his behavior and addressed it. “To his credit, James became the change he wanted to see in his organization,” Cashman writes. “James paused, and learned to become more self-aware through self-reflection, which began to unlock his potential, and many of the doorways of his team flew open as well.”

Beyond pausing to inspire personal growth, effective leaders must find a way to grow others in the organization. Cashman recounts work with a CEO who was quite bellicose in self-praise but failed to see how his attitude stifled growth in others within the organization. “His behavior demonstrated he was open to being right. He was open to being the smartest person in the room. He was open to dominating discussions. He was openly critical. However, he was closed to his impact on others,” Cashman writes.

Working with him over several months, Cashman was able to get the executive to pause and learn how to be more receptive, listen more, interfere less. When he realized the power of such behavior, he learned to pause on his own to give others a chance to work out solutions to problems and to express their own ideas. Even the man’s spouse saw the transformation and called Cashman. “Whatever you are doing,

please keep it up,” she implored him.

The Pause Principle is also crucial to creating cultures of innovation, Cashman asserts. He describes Mike Paxton, former CEO of HäagenDazs and currently CEO of Chamilia, a fast-growing jewelry company.

Paxton is one of those talented leaders who reflexively foster a culture of innovation by pushing their people to find new and better ways to get things done.

In building Chamilia, Paxton paused to consider how to convey to the organization that continuous innovation was the key to global growth and success. “This is a fastgrowing, successful company with highly energized teams with tremendous creative design success,” Paxton said. “I had to step back to think about how I could inspire them to push the envelope, set innovation as the goal not just in design but in all areas.” Paxton challenged his team to become the leader in innovation every year, and not just in design but in supply chain manage-

Briefings on Talent & Leadership

ment and production. By pausing to create a culture of innovation, Paxton set his company on a dynamic path to success.

Following the long-held credo that business books must provide Monday morning takeaways, Cashman concludes each chapter with a set of exercises for readers to use to build the concept of pause into their workplaces and personal lives.

Simple though the concept may be, the reality of embracing Cashman’s ideas faces intense resistance. But in the long run, there is no escaping the day of reckoning.

“Pause is an inherent, generative principle that is always there, always available to us,” Cashman concludes.

“Either we consciously go to it, integrating it in our lives or it comes to rescue us. Think about the many times you’ve felt the tug of pause.... your intuition telling you to take a break, or to take another approach... and how many times you’ve ignored it until finally you could ignore it no longer.”

NOT A LAUGHING MATTER An analysis of speech patterns in business meetings reveals the majority of male humor (80%) takes the form of flippant, off-the-cuff witticisms or banter.

About 90% of it receives an instant, positive response, usually as laughter. Yet most female humor during the course of a meeting is selfdeprecatory (70%) and more often than not (at least 80%) is received in silence.

Perhaps because of the poor reception accorded to women who used humor, men are three times more likely to use jokes to lighten the mood in meetings they are leading.

Source: The Observer

Q2.2013

71

Parting Thoughts

by Joel Kurtzman

We’ve Seen It All Before All of the haggling over taxes, budget deficits and spending reminds me of the small collection of old magazines I have. Magazines are about the only thing you can collect that, no matter what happens in the world, will not go up in value. Trust me on that. They’re nothing like stamps or art. You have to have other reasons for keeping a fire hazard like a disintegrat-

For example, I have some Fortune magazines from the 1930s in one of those stacks. One of them, from 1938, is about new sources of energy, including alternative energy, which would be available in the United States after the oil runs out. Texas was the Saudi Arabia of the pre-World War II era.

Except for its retro style, the article, photographs, illustrations and charts could have been published today. It lists natural gas, ethanol, hydropower, wave power, geothermal energy and shale oil as new sources of energy and fuel. They’re the alternatives we are discussing now.

The magazine has pictures showing how each solution works. Photographs show cars running on natural gas, while others show scientists generating electricity from the sun.

The only source of energy the article missed was nuclear.

Maybe in the far-off future, the authors write. Well, maybe.

Another Fortune article, written in the midst of the Great Depression, wonders whether factory automation will destroy jobs. Another one, from the same period, shows the astonishing speed and efficiency with which the now-defunct New York department store, Gimbels, receives orders and drops products into the mail. If it weren’t for those old-fashioned pneumatic tubes, pulleys — and men in doublebreasted suits — you might think you were looking at black-and-white photos taken at the Zappos division of Amazon.

Another article contains a first-person account of a journalist’s visit to Russia to see what he calls the “Soviet experiment.”

His conclusion? Forgetaboutit. It’ll never

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work. He was sure right about that.

I bring this up because we sometimes think, erroneously it turns out, that the period of time in which we live is unique.

That our problems could never have been encountered before, and that the solutions we propose, to spending, say, are new.

And yet, just the opposite is true. Since the beginning of time, people have wrestled with recession, depression, debt crises, unemployment, political bickering, shortages and collapsing levels of confidence.

It turns out, according to one of my old National Geographic magazines, that 6,000 years ago, when the Sumerians wandered onto the scene in present-day Iraq and invented civilization, their in-baskets contained the same long list of problems to solve as ours. Except their lists were written on clay.

Back then, they had to concoct ways to bail out city-­ states that piled up too much debt, they had to play with interest rates to spur growth and pay for infrastructure improvements, and they had to raise and lower taxes on the wealthy, which were paid with grain. They had to do all this while preserving the value of the talent and shekel. They did all this to create wealth and preserve jobs.

What I’m saying, and what my musty pile of magazines proves, is that we’ve seen all this bad political behavior before. Way before. According to my magazines, after everything is resolved, we’ll probably see it all again. Nothing really changes.

Robert Risko

ing stack of paper in your office, basement or garage. For me, it’s because of history.

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