Talent + Leadership PLUS: A.G

QUARTER TWO

VOLUME FOUR N1O. 4

Cheap Energy Forever Boone Pickens’s Newest Plan

Talent + Leadership PLUS: A.G. LAFLEY ON WINNING | LIFE’S BETTER AT THE TOP LOCAL IS THE NEW GLOBAL STRATEGY | GROWING FAST IN SLOW TIMES

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to think about. Contributing editors Chris Bergonzi Stephanie Mitchell David Berreby P.J. O’Rourke Lawrence M. Fisher Glenn Rifkin Victoria Griffith Stephen J. Trachtenberg Dana Landis Adrian Wooldridge

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4 letter from the ceo 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 24 it’s better at the top

The role of H.R. is evolving. The more senior your job, the less stress you have. 8 growth now: focus on minds, BY glenn rifkin not markets Talent is the real engine of growth. 32 total recall 11 overplaying your strengths Memory is malleable and depends on mood. BY david berreby Hidden weaknesses derail leaders. In Review 38 the purpose of strategy is to win Some executives just want to play, when their goal 70 “the pause principle” should be winning. BY michael distefano and joel kurtzman Parting Thoughts 46 joichi ito — a renegade in the lab 72 we’ve seen it all before To stay at the cutting edge, MIT went out of its academic Bad behavior in government is nothing new. comfort zone and hired a leader for its Media Lab who BY joel kurtzman never finished college. BY lawrence m. fisher 54 calling on a steady hand 38 Franco Bernabè is leading Telecom Italia at a time of globalization and rapid change. BY timothy hindle Governance

60 building boards that perform Best practices in the boardroom start with real independence. BY robert e. hallagan and dennis carey 65 the boardroom collides with the digital age The world has gone digital; governance must too. BY mina gouran 65

54 A fascinating encounter

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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 be- nearly three-hour film, everyone in the theater immedi- gan speaking. Suddenly, he noticed a man in the corner of ately began clapping — viewers were cheering at a blank the room leaning against the wall, not paying attention to screen. Why? Because they connected emotionally with the presentation. Furthermore, the man wasn’t dressed the story. like the rest of the audience; he was in jeans and a ragged Think of the movie “Rocky,” a fictional rags-to-riches T-shirt, with a baseball cap on sideways. Here was a perfect tale of an unknown boxer who suddenly gets a shot at the example, the CEO thought, to show employees that such world heavyweight championship. Even though Rocky laxity was no longer going to be permitted. loses the fight in a split decision by the judges after 15 “You in the corner,” the CEO yelled out. “How much do punishing rounds, he is the champion for whom the au- you make a week?” dience always cheers. (The movie went on to win three Looking up in surprise, the guy replied that he made Oscars, including Best Picture.) Even today, the iconic about $400 a week. With a smirk, the CEO reached into image of Rocky running up the steps of the Philadelphia his pocket and pulled out $1,000 in cash. “You’re fired!” he Museum of Art and pumping his fists in the air evokes said. As the man in the baseball cap took the money, the the heart-pumping determination of a character who was CEO noticed a funny grin on his face, but he ignored it. incapable of empowerment until he believed in himself. After his speech, the CEO called one of his lieutenants To connect with others, to inspire others through over. “So, how do you think I did?” he asked. “I sure made communication, you don’t have to be Rocky or, for that an example of that guy. By the way, who was he?” matter, Ernest Hemingway or George Clooney. You don’t “That was Johnny, the pizza delivery guy.” have to spin tales of how others accomplished the seem- Moral of the story and cardinal rule No. 1 in communi- ingly impossible. But you must be authentic, particularly cating: Before you speak, know your audience. in times like these. At its best, communication does more than inform. It Returning from the holidays, it is always refreshing inspires and moves us to consider what we might become to sense the overwhelming renewed hope at the start of if we, too, were “more” — more determined, more prepared, a new year — employees return to work optimistic, even more confident and more empowered. when there’s no rational reason for it. When we walked During the recent holiday season, I had the joy of en- through the doors in the first week of January 2013, soci- tertaining five of my teenagers over a 10-day period. My ety faced the same issues it did in December 2012. role: provider of transportation, purveyor of snacks and The world’s central banks continue to dole out money procurer of incidentals. On the condition that they had to as if it were candy, unemployment rates in most of the “check” their “i-Gadgets” in the car, I took my motley crew world remain high, and companies continue to ask fewer and their friends to see “The Hobbit.” At the end of this workers to do more for less. With the exception of the

4 Q2.2013 Korn/Ferry 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, ped- aling 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 of an organization are often far less stressed than the their words. In fact, more important than what they say is workers reporting to them. This insight sheds light on how they say it. The role of the leader is much more than better ways to lead, and it illustrates why it is important merely relaying information contained in tables, charts for bosses to listen and to empathize with those they lead. and slides; it’s about being the message. Also, one of our regular contributors, David Berreby, There are no better examples of “being the message” takes a look at the way humans remember events and than T. Boone Pickens, the legendary oilman, corporate discusses what researchers are now coming to realize — raider, alternative energy pioneer and hedge fund man- while our brains do compute, we are not computers. Our ager, or A.G. Lafley, former chairman and chief executive memories tend to be changeable, and how we feel today of Procter & Gamble. Both are highlighted in this issue determines to a certain extent the way we recall what of Korn/Ferry Briefings on Talent & Leadership. As you will happened yesterday. Finally, Briefings takes a look at MIT’s read, Pickens is a man who can tell a good story and, at Media Lab, one of the most creative places on earth. In a vibrant and fit 84, he’s done it more than once. Lafley choosing its new leader, MIT went beyond its academic discusses strategy — during his 10 years leading P&G, the comfort zone and hired Joichi Ito, a brilliant, iconoclastic, company added $100 billion in shareholder value. venture capital investor and technologist who never fin- In Briefings, Korn/Ferry shows how companies can ished college. Ito is a global citizen. He was born in Japan, grow faster by focusing on developing executives first, grew up in Detroit and worked in Tokyo, Silicon Valley, markets second. Because stress is inextricably linked to Boston and Dubai. these times, we decided to tackle it. Whether it comes We hope you enjoy this issue of Briefings, finding rea- from sprinting for a plane or from running in place in sons to be hopeful and inspired — and bring that opti- this listless economy, staffers are fatigued, which drags mism and enthusiasm into the movie you’re living every down morale. Research not only shows there are ways to day, so that 12 months from now you can say it was,

David Strick cope with stress, but also indicates that leaders at the top indeed, a very good show.

Briefings on Talent & Leadership Q2.2013 5 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?

or at least 15 years, it has been ting more pressure on the function. how personnel departments could considered axiomatic that the Boards are spending a lot more time help shape corporate strategy was Fmanagement of human re- embedded in H.R. They are more proposed by David Ulrich, a profes- sources must be integrated into an heavily involved in talent, going one, sor at the University of Michigan, in organization’s overall strategy in or- two and sometimes three levels down 1997. In the Ulrich model, human re- der to meet the demands of a rapidly in the organization.” sources would operate on three lev- changing business environment. In While the demand for a more els: as a corporate-level partner that their 2001 book, “The H.R. Scorecard: mission-oriented approach to staff- helps define strategy, as a consultant Linking People, Strategy, and Perfor- ing and recruiting has grown, the that helps line managers implement mance,” Brian Becker, Mark Huselid supply seems to have lagged. In a strategy, and as a skilled administra- and David Ulrich encapsulated the recently published survey conducted tor that stewards company-wide ser- rationale: “The evidence is unmis- by the University of Southern Cali- vices to support strategy. In theory, takable: H.R.’s emerging strategic fornia’s Center for Effective Organi- this would allow personnel depart- potential hinges on the increasingly zations, today’s human resources ments to spend less time on admin- central role of intangible assets and professionals reported spending no istrative duties — perhaps outsourc- intellectual capital in today’s econ- more time being a strategic partner ing them entirely — and more time omy.” Since then, changes in technol- than did the respondents to the ini- helping to steer the organization. ogy, demographics and globalization tial survey in 1995. Edward Lawler, In practice, many organizations have only intensified the need for the a USC professor and founder and di- are falling short of that ideal, in large human resources profession to raise rector of the center, said the survey part because human resources pro- its game. results “clearly show [that] being a fessionals historically have not been “The expectations of the H.R. role strategic contributor demands high required to possess the competencies have grown tremendously,” said Kim levels of business knowledge, infor- and background necessary to have a Shanahan, North American human mation systems that have the right say in corporate strategy. “It is still resources practice leader for Korn/ metrics and analytics, [and] organi- difficult to find the right kind of H.R. Ferry International. “CEOs are put- zation designs and practices that link leadership — people who think about H.R. managers to business units. The organizational capability in the ag- results also show that H.R. is not do- gregate,” said Emilie Petrone, senior ing what needs to be done.” client partner in human resources The generally accepted model for practice for Korn/Ferry International.

SAY WHAT? 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 Hal Mayforth

6 Q2.2013 Korn/Ferry “The challenge for H.R. is to develop ness and profitability. While that as- [among] U.S. publicly held compa- a critical mass of people who are up sumption is intuitively reasonable, it nies, most now have a financial strat- to the task.” is not dispositive, and it is met with egy that drives the business. There Ulrich thinks that personnel di- skepticism by some non- H.R. execu- is nothing like an overall business rectors haven’t been quick enough to tives. Many studies have examined strategy, [so] the idea that the func- grasp the essentials of business man- this issue, but the results have been tion of H.R. should be to help exe- agement and that they compound inconclusive. cute strategy has little meaning.” that error by focusing on activity “The bottom-line effects of strate- Akiko Takahashi, executive vice rather than outcomes. “You’re not gic H.R. issues — such as CEO readi- president and chief personnel officer measured by what you do but by what ness, depth of bench and diversity of of Melco Crown Entertainment in you deliver,” Ulrich has said. workforce — are real, but difficult to Hong Kong, suggested that human Despite extensive efforts to mea- quantify,” said Petrone. “For instance, resources departments can only be sure what it delivers, the human re- you can definitely correlate employee as important as the CEO allows: “For sources profession has had some dif- satisfaction to customer satisfaction, H.R. to be a strategic partner, it needs ficulty doing so. To be sure, it has no but how do you parse what part of to report to a CEO who innately be- shortage of yardsticks — cost per hire, that is due directly to H.R.?” lieves in human capital. [Human re- revenue per employee, turnover rates, Some obstacles to strategic in- sources’] ability to influence has to compensation value added, among volvement lie outside a personnel come from the CEO’s authority.” others. However, implicit in the track- department’s purview. Peter Cappelli, Perhaps the biggest obstacle to ing of these metrics is an assump- a professor at Wharton and the di- achieving “strategic H.R.,” however, tion that they indicate a personnel- rector of its Center for Human Re- is that no one inside or outside of related contribution to bottom-line sources, pointed to the changing fo- human resources seems to agree on

Steven Guarnaccia outcomes like growth, competitive- cus of corporate strategy: “At least exactly what it means. Although no

Briefings on Talent & Leadership Q2.2013 7 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, Growth Now: Focus on Minds, Not Markets New Zealand and the United States have the most positive overall opinions of the policies in place to promote their he nature of economic growth growth. The five countries surveyed with the most nega has changed. From the mid- tive overall perceptions are Greece, Venezuela, Ukraine, T1990s to 2007, developing Andorra and Poland. Source: Monitor Group economies — especially those in Asia — experienced a period of growth un- matched 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 one disputes that talent manage- an almost intrinsic binding force in markets and consumers, and house- ment, workforce productivity, lead- an increasingly specialized, far-flung hold consumer borrowing drove ership development and a high- and self-managed world. spending around the world. A gen performance culture are crucial to Paul Buller, professor of manage- eration of corporate leaders was corporate performance, few agree ment at Gonzaga University in Spo- shaped by this period, when growth about how, or even whether, person- kane, Wash., sees it this way: “H.R. was there for the taking; all they had nel departments influence those fac- needs to become an internal consul- to do was show up. tors. As a practical matter, some are tant and change agent to facilitate And now, suddenly, that era is suggesting that it’s time to back off vertical and horizontal integration, over (see Figures 1 and 2), and we have the demand for strategy with a capi- so that everyone in the organization entered the era of “smart growth,” tal “S” and seek a more straightfor- sees how what they are doing is con- in which growth is slow but change ward, results-oriented model. nected to the big picture — a ‘line of is fast. In his recent report, Smart “The way to become a business sight’ that allows for continual adap- Growth: Is Asia Ready?, Korn/Ferry partner is to quit agonizing over be- tation. This would provide a unique leadership and talent consulting ing a business partner and trying to source of competitive advantage that managing director Indronil Roy ex- force unnecessary activity on the rest would be hard to imitate.” plained how this period of complex- of the enterprise,” said Dan Bowling, Some predict that were human ity and uncertainty — in markets, former global head of human re- resources to become a more widely finance and currency — will require sources at Coca-Cola Enterprises. integrated competency, it would en- leaders to think and act differently “Focus instead on what is important.” gender an osmotic permeability be- to unearth growth where none is One alternative model that has tween H.R. and line management. evident. Leaders’ shrewdness about gained some traction envisions hu- Eventually, the distinction between growth will make a difference in man resources not as a single de- the two would vanish. Laurie Ruet corporate performance. partment trying to morph itself in timann, a recruiter, trainer and How long will smart-growth con- multiple directions, but rather as founder of HRM Today, a social net- ditions persist? A resounding num- competencies embedded company- work for human resources profes- ber of CEOs believe these conditions wide, sometimes as discrete job sionals, put it succinctly: “H.R. [will will last for the rest of the decade, if functions, but more often as distrib- be] fixed when it ceases to be H.R. not longer, for myriad reasons. The uted responsibilities in which every and starts to be a core and critical global financial crisis led to a stricter employee has a human resources management responsibility. [H.R.] regulatory regime that is (some- component to their job. This model, shouldn’t serve the business. We times justifiably) constraining risk in short, casts human resources as should be the business.”

8 Q2.2013 Korn/Ferry Growth Now: Focus on Minds, Not Markets

taking. Regulatory pressure on the Figure 1: GDP growth in emerging/developing economies 12% banking system in particular is reducing the risk capital available. Si- 11 multaneously, rapid reduction in China 10 consumer debt, stubborn unemployment and wage stagnation in the 9 West continue to drive down con- India sumer demand to a degree that can’t 8

be offset by the rise in emerging- 7 market consumption. Increasingly 6 focused on costs and their bottom Other Developing Middle East lines, corporations are reducing in- Countries 5 vestments. And, finally, the momen- tum of globalization has slowed, if 4 not reversed. Some governments are 3 reverting to a protectionist agenda Latin America Africa Central & Eastern and erecting higher trade barriers to 2 Europe satisfy domestic political pressures. Russia & Other CIS “My executive team is wired for 1

easy growth,” one banking CEO in 0 Asia explained. “In the 20 years that they have been in management roles, Figure 2: GDP growth in developed economies growth was a given. Even at the 4% Other Advanced depths of the Lehman Brothers crisis, 3 we knew that if we could just hold on to our basics long enough, the tide 2 U.S. would turn. My team is still waiting 1 for the tide.” EU-15 Like him, many CEOs are grap- 0 pling with a vital question: How can Japan -1 we create growth where there appears 1996- 2006- 2011 2012 2012- 2017- to be none? Is there a combination of 2005 2011 2016 2025 inventiveness, courage, wisdom and skills that can accomplish that? a leadership team that can carve out in smart growth. In a recent study of As a first step, businesses must growth where others may see no leaders at 14 companies across Asia, make a mental leap, moving away hope. This view makes leadership Korn/Ferry found that two sets of from the notion that growth exists more complicated and nuanced, but characteristics indicate smart-growth in certain markets and toward the also more powerful: It holds that readiness, or lack of it: leadership idea that growth emerges from cer- leaders, not market conditions, de- maturity and learning agility. tain leaders. In fact, it is increasingly fine the limits of growth. Leadership Maturity is an indi- hard to find markets that grow at a But which leaders, exactly? Those vidual leader’s ability to operate ef- double-digit annual pace. Instead, who drove high performance in easy fectively at high levels of complexity, organizations must look within for growth will not automatically excel ambiguity and scale. Korn/Ferry

Briefings on Talent & Leadership Q2.2013 9 The Latest Thinking

The shift in skill and mindset for growth leaders

Business Growth Business Growth Easy Smart growth growth leadership leadership GDP/Market 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 Taken together, these are the best a higher rate of top-line growth. that examines the communication, factors for predicting smart-growth Businesses routinely talk about decision-making and operating styles readiness. Both can be measured fairly talent being their most important as- of executives. Think of maturity as and accurately, and benchmarked set, but without a clear analytics and the indicator of a seasoned executive, against leaders in the relevant indus- benchmarking platform to measure someone with experience in complex try and markets — pragmatic consid- and value talent assets, that narrative situations who handles challenges erations if they are to be used in often lacks conviction. with grace. Given the shifts under business. Both can be developed in Korn/Ferry’s smart-growth re- way, maturity will be paramount. individuals, giving organizations a search provides a new framework Learning Agility is an individual way forward to enhance the competi- for investigating how leadership is leader’s ability to operate effectively tiveness of their leadership teams. linked to growth. It may provide the amid disruption, speed and volatility. The aggregate maturity and agil- much-needed tools to ascertain the This is measured with Korn/Ferry’s ity of a leadership talent pool point true value of leaders and leadership viaEdge assessment, which analyzes toward a company’s ability to drive teams. interpersonal skills, self-awareness, growth rates over and above those of Investors, boards and stakeholders deftness with complexity and change, normal market participants. Broadly will continue to push management and the ability to deliver results in speaking, the ratio of those with teams to quantify and benchmark first-time situations. Think of agility high scores in maturity and agility to talent assets to support evidence- as an indicator of a fast-learning ex- those with low scores reveals a busi- based decision making, as they should. ecutive, someone who knows what ness’s overall “smart-growth capacity.” Businesses that excel in this area of to do when he doesn’t know what to Korn/Ferry examined both head-to- competence will see real advantage do. Given a fast-changing environ- head competitors and markets with in the marketplace — to paraphrase ment in the smart-growth era, agility multiple competitors and found that Warren Buffett— as the others are will be the other differentiator among a higher group score means that or- left dangerously exposed by the leaders. ganization is far more likely to have retreating tide of growth.

10 Q2.2013 Korn/Ferry Briefings on Talen t &Leadership Everett Peck I “Bill” MarriottJr., MarriottCorp.’s “What doesaCEOlooklikeandfeel “What The hidden weakness thatderails leaders Overplaying YourStrengths Albert Banduralinksself-awareness Luck”: “Inmyexperienceandinthe The work of influentialpsychologist workof The recalled ameetingin1994withJ.W. research mycoauthorsandIdidfor remember thislikeitwasyesterday. ment thatheknewwhowas. I is borneoutbyresearch.Amultitude a young chief executive,39yearsold, a youngchief author of “Heart, Smarts, “Heart, author of Guts, and ability tosucceedinspecificsitua- identity,”notion of saidHackett. person’s hisorherown perceptionof pressed withhave[thatsame]sense being struckbythelookin[Marri- them through. the morelikelyyouaretofeelconfi- the moreyouknowaboutyourself, tions. Ingeneral,Banduracontended, the seasonedMarriott. to self-efficacy, whichhedefinesasa trumps all,evidentinvirtually every dent intakingthingsonandseeing like? Asweweretalking,Iremember Since then, the [CEOs] I’m mostim- Since then,the[CEOs]I’m great entrepreneur, managerand chairman of theboard.Hackettwas chairman of seeking wisdomandguidancefrom sonal andcorporateperformance. per- self-awareness asthebedrockof of studieshavepointedtoexecutive of peaceandself-awareness.”of ott’s] eyes. Iunderstoodinthatmo- our book, thereisonequalitythat our book, , James P.York Times,James the Hackett, The New n arecentinterviewwithThe president and CEO of Steelcase, president andCEOof “I hadbeenstrugglingwiththis According to Anthony K. Tjan,co- According toAnthonyK. Hackett’s intuitiveobservation

flect andapplypersonalinsights.” The conviction The makes themlessthanoptimally report indicatedthat79percenthad more than 2,700 professionals, Orr’s more than2,700 mate skillsorunderestimateshort- mistakes, andthetendencytore- most insidiousform,however, when fall havea thatideal.They short of ity. makesself-awareness This CEOs needfortheirvision wired forembracingvulnera- is knowingyourstrengthsandlimi- when othersderail.Self-awareness why somebusinessleaderssucceed at leastoneblindspotand40percent awareness isakeytraitthatexplains act on feedback, theabilitytoadmit act onfeedback, bilities orleadingwithhumil- ber of ways:atendencytooveresti- ber of tional report, “Survival of theMost “Survivalof tional report, that muchmoreessential.” the ego tapped capacity(knownasa“hidden that inanum- can manifestitself that “whenallthingsareequal,self- tations, thewillingnesstoseekand their talents, butroutinely overuse had atleastonehiddenstrength. director of intellectualpropertyre- director of leader. isself-awareness. That distorted perception of themselves distorted perceptionof leaders have an accurate sense of leaders haveanaccuratesense of Self-aware,” authorJ. EvelynOrr, comings (knownas“blindspots”), strength”). Basedonfeedbackfrom concluded search anddevelopment, or an inabilitytorecognizeun- or misapplythem,turningthem into Lack of self-awarenesstakesits Lack of In arecentKorn/FerryInterna- Unfortunately, mostleaders — thatfoundersand — andyes, often

“Preventing Derailment: What to What “Preventing Derailment: first tolinkthisphenomenon rather toastrengthinoverdrive: ex- Do BeforeIt’s Too Late.” pointed They is often notduetoaweakness, but weaknesses. Researchshowsthat and RobertW. Eichinger, cofounders treme confidence careeningtoward tancy Lominger, wereamongthe the firstplace.MichaelM.Lombardo in that madethemhighperformers high performersinallfields, espe- double downonthecoreattributes cially whenunderstress, instinctively executive dysfunctionintheirbook out thatpoorexecutiveperformance thetalentmanagementconsul- of Q2.2013 11 The Latest Thinking

arrogance, detail orientation deteri sult is lopsided leadership: too much leader’s mindset and behavior are ex- orating into micro-management, of one thing, made worse by too little plored in concert, he will not become forcefulness sliding into abusiveness, of its complement. Versatile leader- aware of the self-defeating assump- consensus-building degenerating ship arises only from acknowledging tions, impulses and emotional reac- into indecision. that each approach is a half-truth and tions that drive his excesses and will This leader’s compulsion to over- from embracing both.” therefore not have the tools to mod- rely on strengths is more than just an Many leaders know this on an ulate his behavior. occasional phenomenon. For many, intuitive level, but they tend not to “Modulate” is the operative word. it becomes habitual and ingrained — accept it in practice. In their careers, Indeed, some in the field of leader- a default position. In fact, according they have seen the efficacy of their ship development are gravitating to Drs. Robert and Joyce Hogan, lead- strengths and have come to rely upon away from thinking in terms of ab- ing thinkers in the area of personal- them heavily as a source of security. solute strengths and weaknesses. ity assessment and organizational When faced with the prospect that “There is no such thing as an unqual leadership, overused strengths con- the very intensity that fueled their ified strength,” wrote Morgan W. stitute leaders’ most common flaw, rise to the top can be sabotaging McCall Jr., a professor at the Univer- and the most dangerous. The research, their effectiveness, they are often sity of Southern California’s Mar- they say, draws a consistent conclu- panic-stricken at the thought of shall School of Business and an sion: When leaders collapse, it is needing to ease up. Not surprisingly, expert on the topics of executive almost invariably the result of over- then, development efforts that focus development and derailment. “Any playing the characteristics that ini- solely on prescribing behavioral effective development strategy will tially contributed to their success. changes or counterbalances to over- have to acknowledge that what mat- “Not only does overusing one’s use have limited success because ters are combinations of strengths strength corrupt and degrade its they do not address the leader’s un- and weaknesses as they manifest value,” said Robert E. Kaplan, coau- derlying mindset — the cognitive, themselves in specific situations.” thor of the new book, “Fear Your emotional and motivational roots All behaviors, then, are seen ob- Strengths,” “but it begets weakness of the imbalance. jectively as competencies that have in yet another way. By embracing “A leader’s mindset will throw a wide spectrum of application — their strength as the only truth, these off his form just as an athlete’s does,” they are only potential strengths executives consequently ignore an said Robert B. Kaiser, who coau- or potential weaknesses, depending equal and opposing strength. For thored “Fear Your Strengths” with upon the degree to which and the instance, a leader who adopts an Kaplan. “Correcting it is far more circumstances in which they are automatic and uncompromisingly challenging than simply shoring up brought to bear. In other words, said forceful stance in all circumstances a deficiency. It requires intellectual author Kaplan, “There is no fixed will be unlikely to be tuned in to en- honesty and the courage to rummage setting on the dial for the proper abling the efforts of others. The re- in the attic of your mind.” Unless the 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:

1. Tape recorders (79%) 6. Desktop computers (34%) 2. Fax machines (71%) 7. Formal business attire like suits, ties, pantyhose, etc. (27%) 3. The Rolodex (58%) 8. The corner office for managers/executives (21%) 4. Standard working hours (57%) 9. Cubicles (19%) 5. Desk phones (35%) 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

12 Q2.2013 Korn/Ferry Why not put your people’s development in the hands of the professionals? Theirs, that is.

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Get in touch: [email protected] Find out more: www.kfforte.com Korn/Ferry 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 Q2.2013 15 Hugoton’s whale. Mesa was on its way to “I don’t You have a plan to use natural gas in trans- becoming one of the largest independent oil portation for long-distance trucks and other and gas companies in the United States. want any heavy-duty vehicles. Who will pay for that? After the acquisition, Pickens, like many an- money PICKENS: For sure not the government. I don’t other rich Texan, decided to enter the cattle want any money from the government. Industry business. He did it the Pickens way — acquir- from the will pay for it because it’s profitable all the way ing a feeding and watering operation capa- govern down the line. And it’s a cheaper fuel than diesel. ble of handling 160,000 head of cattle at a We have a company called Clean Energy that time. “Small” is not a Pickens word. ment. provides it, and in 2013, a new 12-liter engine for heavy-duty trucks is coming out. That engine In the 1970s and ‘80s, Pickens became a Industry was the missing link. They already have 9.8- and corporate raider, launching takeover battles a 15.2-liter engines, but 12 liters are optimum for for large companies, including Phillips Petro- will pay natural gas. leum, where he had worked. He also made a for it run at Gulf Oil, Cities Service, Unocal, New- because Wouldn’t the big win be using natural gas in mont Mining and Diamond Shamrock. And passenger cars? while these companies got away, he was it’s profit PICKENS: Why? rewarded handsomely for his efforts. It is no able all surprise that the title of his autobiography Because there are a lot of cars in the United is “The First Billion Is the Hardest: Reflec- the way States and they use a lot of fuel. And since a tions on a Life of Comebacks, and America’s down good share of American homes have natural Energy Future.” After a stint as an acquirer, gas piped in, people could fill their cars at home. And natural gas is a much cleaner fuel Pickens started an investment firm. the line. than gasoline. Don’t you think those are com- Pickens has not been in it just for himself. And it’s pelling reasons? He is committed to the environment, invest- PICKENS: Yeah, no question. All of those are win- ing hundreds of millions of dollars in wind cheaper ners. But when it comes to home fueling you energy and natural gas, publicizing it as “the than don’t use enough fuel to make it worthwhile. If Pickens Plan.” As a philanthropist, he has diesel.” you use 500 gallons a year and the device you put given away more than $600 million, with in your garage to fill your car costs $4,000, that’s plans to give away more than $1 billion. a little bit expensive. And so, in my plan, that Pickens is not afraid to state his opinions. comes later when the equipment is better. I have What follows is an edited version of a conver- one of those units in my garage. sation between T. Boone Pickens and Joel Kurtzman, editor-in-chief of Korn/Ferry Do you like it? Briefings on Talent & Leadership. The inter- PICKENS: It worked fine, but I changed cars, so I

view took place in Laguna Beach, Calif. don’t use it. This page: Associated Press. Opposite REUTERS/Tim Shaffer Previous page: ©Zoonar/igor terekhov/AGE.

16 Q2.2013 Q2.2013 17 What about filling stations? lion vehicles, it’d take you 10 years or longer. And you don’t PICKENS: There are already 1,500 stations in the United do it by converting existing passenger vehicles to start with. States where you can get natural gas fuel. You do it with new cars — when you sell your car and buy a new one, you get one that uses natural gas. Isn’t that a small percentage of filling stations? PICKENS: That’s why I say, you press first to do heavy-duty What are the other steps? trucks. Once that’s accomplished, then you’ll start to see PICKENS: My pitch to Obama was first, you announce that the whole thing come together. all federal government vehicles would run on domestic resources. They told me this point would be in the State of the Given how much natural gas we have in the U.S., Union speech. That way you leave it open to natural gas, why hasn’t it moved faster? electricity and batteries, and so on. I mean, we’re not trying PICKENS: Because I’ve been a crummy salesman, and I’m to pick winners, but we are trying to use our own resources. the only one trying to sell it right now. That’s what my pitch is. So the federal vehicles start us on the

You certainly put it into people’s consciousness with learning curve about what’s the best fuel for our fleet. And your speeches, ads and editorials for the Pickens Plan. that’s how you figure out how to do it. Then I said six months Do you think people are paying attention now? after that, you go back to the American people and say, “Look, PICKENS: Yeah. But look, the only reason it’d happen and peo- the federal fleet mandate worked.” You might want to give ple would be using natural gas in their cars is if people made some kind of tax credit for people to do it, but the idea is money off of it. Somebody’s got to make money or they don’t to keep it simple. So, the speech is, “We need to get on our fill in their link in the chain, and it all breaks down. So my own resources in this country, and as president of the United

view is, if you’re going to do the whole country, all 250 mil- States, I’m going to come to you individually and hopefully Associated Press

18 Q2.2013 Korn/Ferry you’ll follow my lead, so the next car you buy would be one Why is that? that uses domestic resources.” That’s my pitch. And you could PICKENS: Only one reason. It’s oversupplied. get families around the table and have them all talk about which kind of vehicle they think is best — batteries, natural Why is there an oversupply now? Is it because gas, ethanol, all of them — and have each family member re- of hydraulic fracturing technology, fracking? search it so when they went out to buy their next car, they’d PICKENS: Well, when it comes to fracking completions, the be doing it together. It’d draw people together around this cost of wells is higher everywhere else in the world than the issue. But the bottom line is this: If you don’t pick a domestic United States. It’s cheaper here than any place else, so you get energy source, it means you’re picking OPEC, because those more supply. We should take our hats off and thank the oil are the only two choices. and gas industry in America. They’ve gotten us the cheapest energy in the world. But no one in government has the guts You’ve been called a legend in the energy industry... to say this industry’s done a pretty damn good job. 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. Do you subscribe to the idea that because of fracking there’s an energy revolution under way in the United States? Point taken. But you really are a legend. You started one PICKENS: of the most successful independent oil companies, led The simple answer is no. And, by the way, I saw some well-publicized takeovers, began a corporate gov- fracking going on in Texas in the ‘50s. Look, the United States ernance movement, started a successful hedge fund, has always had natural gas. It’s always been there and it’s al- were a pioneer in wind energy, and now you’re focusing ways been oversupplied. That’s why it’s never sold at parity on natural gas. Sounds like a legend to me. with crude oil on a price basis. Parity would be a price of 6 to PICKENS: I even did some offshoots from wind. That cost me 1 against oil, given the energy it possesses for a given volume. $150 million. But I’ve never seen it better than 10 to 1, and today it’s 20 to 1.

“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 Do you anticipate natural gas prices in the an opportunity right now? 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 PICKENS: Simple. In the U.S., we’ve gone from 1,600 rigs drill- is natural gas. So, if in the U.S., natural gas is trading at $6 ing for natural gas down to 400. Natural gas production is in a thousand cubic feet (MCF), that makes wind work. But if decline again in the United States — for a while, because of natural gas is at $4 a MCF, it kills wind. It’s that simple. oversupply.

Natural gas in the U.S. has been trading at very low So the rig count is down because of low prices levels — as low as between $2 and $3 a MCF, recently. resulting from oversupply? PICKENS: Well, right now, we’re back up to $3.75 a MCF. And, PICKENS: You got it. Like I said, when there’s that 6-to-1 parity when you look at what natural gas really is, it gets interest- with crude oil on a price basis there’s a lot of reason to drill. ing. See, natural gas happens to be the superior end of the Right now, at 20 to 1, there’s no reason to drill more wells. hydrocarbon chain for environmental and energy reasons. I’ve seen the ratio as close as 10 to 1, when we had $100 oil and It’s a pretty clean fuel, compared to all the others. So what $10 natural gas. But there isn’t anybody today who’s predict- we’ve got is a situation in the U.S. where the superior end ing $10 natural gas. There’s nobody today even predicting $8 of the chain sells at a discount to the competition, which is natural gas. They quit drilling because, at $3 a MCF for natural

Shutterstock crude oil. Isn’t that something? gas, nobody can make any money.

Briefings on Talent & Leadership Q2.2013 19 At what price point will they roll out the rigs again? two-thirds out of our trade deficit, which goes to purchasing PICKENS: When you have $5 natural gas, you’ll see activity. foreign oil. And if you look at Australia and Canada — they’re When you have $6 natural gas, you will see full action. You both living off their own resources, producing their own oil know why all this is happening? and gas. And they’re doing just fine. But that’s not what the administration is doing. No, tell me. 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, PICKENS: Exactly. But did you know there’s only one place in they’ve never been smoothed out or stable. They’re volatile. the world that has freehold mineral rights? It’s the United You get into critical weather, draw down your storage for nat States. In the rest of the world, the government owns all the ural gas, and prices go up. You fill up your storage in the fill mineral rights. So ask yourself, what impact does the right to season, which starts in March and goes through October. own mineral rights have? Because these rights are freehold When you get your storage filled, prices come down. Natural and you and I can buy them, half of the 4 or 5 million wells gas is volatile. On the other hand, look at oil. Oil’s been pretty drilled in the world have been drilled in the United States. stable for the last two, three years, around $100. That’s because of our freehold mineral rights. Companies are planning roughly 85 new job-creating The International Energy Agency recently projected that manufacturing projects in the U.S. worth at least the United States would become the world’s largest oil $60 billion, due to low natural gas prices. Do you think producer sometime around 2030, as a result of fracking that level of investment will continue if natural gas shale oil. Do you see that happening? rises to, say, $5 a MCF? PICKENS: No. 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 Why is that? today in Japan, they’re $16 to $18. In Beijing, they’re $15. In PICKENS: I just don’t know where all that oil — more than the Middle East, they’re $14, in Europe, $13, and in the U.K., 10 million barrels a day — is going to come from. I don’t see they’re $10. Here, they’re under $4. Because of those prices, enough oil reservoirs available to us for that to happen. Now, you’re going to have industries moving back to the United to be honest, did I foresee what has taken place in the last States because the fuel’s so cheap here. And it’s a better place 10 years with regard to production from oil source rock and to do business. 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 These new plants are expected to create a lot of things coming — and I’ve seen a lot of things going, tens of thousands of new jobs. too. And regarding oil, I just don’t see the U.S. becoming the PICKENS: That’s why I say, you’d think that this administra- world’s No. 1 producer. But, if you take all of North America tion would look at some of these things and say, “Gosh, we together — Canada, the United States and Mexico — that’s should hug up this industry, because the oil and gas indus- a different story. If that group of countries works together, try is putting us back on our feet.” then yes, we can become energy and oil independent on a North American basis. But here’s the deal. If you were presi- What should the Obama administration do? dent, and you saw the United States had this kind of resource PICKENS: Get up and say we have the cheapest energy in the potential, and you looked around the world and saw how world and we’re going to support the industry because we good countries look financially if they’re operating on their want manufacturing to come back to the United States. It’s own energy resources, you just might think, “Hey, this is a just good business. I’ve said it before, this administration, real simple way to solve our country’s problems.” Right? Let’s and almost all previous administrations, don’t understand just use our own energy resources. Just doing that would cut 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.”

20 Q2.2013 Korn/Ferry You’re a proponent of using natural gas for transporta- East.” Well, since we’re only getting 2.25 million barrels a day tion. What happens if prices for natural gas rise? from the Middle East anyway, we can cover that with our PICKENS: Let’s say you use natural gas as a transportation fuel domestic resources right now. That will give us the option in trucks, and let’s say it is $4 a MCF. Now, if you compare to move the Fifth Fleet out, and our people out of the area. diesel to natural gas on a gallon basis, if natural gas is selling We spent $1.5 trillion on the Iraqi and Afghan wars, and lost at $4 a MCF, it would be the same as $2-a-gallon diesel fuel. 7,000 of our people with 40,000 injured — and we use very But diesel fuel sells for over $4 a gallon, so natural gas is a lot little oil from the Middle East. So if I were running for presi- cheaper than diesel — about half the cost. Now, if natural gas dent of the United States and you elected me, I would stop went to $8 a MCF, it would be the same as diesel fuel selling using oil from the Middle East. Completely. 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. What about OPEC? PICKENS: Well, we’re importing 4.5 million barrels a day You’ve been outspoken about the true cost in blood and from OPEC. The part of OPEC we’re importing from includes treasury of defending Middle East oil. How dependent Nigeria, Venezuela and Angola. If I were president, I’d move on the Middle East is the U.S.? to get out of that, too. But I’d make getting out of the Middle PICKENS: Do you know how many barrels a day come through East my first move so we can get our people out of the harm’s the Straits of Hormuz? way. Like I said, we can do North American energy independence. Between Canada and Mexico, we’re getting about No. 5 million barrels a day of the roughly 9 million barrels a day PICKENS: Then I’ll tell you — 17 million barrels a day. You know we’re importing. how much of that comes to the United States? Only 2.25 million barrels a day. During the elections the president said, “I Some people are suggesting the U.S. should begin exporting natural gas. Is that wise? Courtesy of Choice Environmental Florida can tell you this. We’re going to get off of oil from the Middle PICKENS: I’m not big on exporting natural gas, but you have to give producers of natural gas an opportunity to sell their

Briefings on Talent & Leadership Q2.2013 21 product into the best market for the modities deals was Lehman. They best price. Getting into the export owed me $2 billion, and I sat at the market requires liquefaction, and it meeting and I said, “You know, proba- requires transportation. When you bly the smart thing to do is let’s just add those costs in, you’re going to call it all in and quit.” But we decided run up the price to $8 or $9 an MCF. to wait a few more days, and it was disaster. Lehman never paid off. They Isn’t that still cheaper than what owed me $300 million. people are paying anywhere else in the world? But you’re still thinking intensely PICKENS: Well, it is. But I would rather about the future and how to develop demand in the United States make tomorrow better than than export natural gas. See, if you’re today, aren’t you? going to use natural gas for transpor- PICKENS: Hell yeah, but I’m getting tation in the U.S., and you’re serious about it and “You’ll shorter-term. you want to go beyond using it just for heavy-duty miss, trucks, you’d likely run up the price of natural gas How do you mean that? to around $6 a MCF. So if you want to export and and PICKENS: The last really long-term deal I made was you add in the cost of liquefaction and transporta- I bought 156,000 acres of mineral rights in the tion, you’re now talking about $11 natural gas. you’ll Marcellus shale formation knowing full well that lose, it was a 100-year play and it probably would not Throughout your career, you’ve put a lot on do much for 10 years. I knew that that was my last the line — in business, even in politics, and and really long-term deal. with your plan. And, typical of entrepreneurial ventures, not everything worked. What’s your you’ll Is everything now short term? attitude about failure? fail, but PICKENS: Shorter term, but not short term. PICKENS: Everyone’s failed. I said in my book, “You better not ever forget how to eat a hamburger be- you’ve Suppose a young person came up to you and cause there will be days when you’re sure not go- got to said, “I want to be the next Boone Pickens, ing to be eating sirloin steak. You’re eating a ham- because you’ve been so successful in so many different areas.” What would you tell them? burger and damn glad to have it.” So you’ll miss, just get and you’ll lose, and you’ll fail, but you’ve got to PICKENS: It’s pretty simple. I’ve been asked the just get up and start grinding again. And some up and question many times. I said I consider myself people can’t stand that. They can’t have had a start to be an average person. Intelligence average, period of success and then lose it. It drives them other skills average, so how do I get away from crazy to do it. grinding the crowd? How do I move out? One, develop a again.” work ethic early, which I did. And two, get a good Is the ability to tolerate failure innate education. Now, you need to ask yourself, “What in people? is it I want to accomplish?” PICKENS: Yeah, I think so, yeah. For instance, I’ve But you say you want to be me? Well, this is been up and I been down. I was up to $5 billion net worth, what I told a high school graduating class in Alexandria, Va. then I went back to $1.5 billion before you could say “Jack I said, “You’re sitting there and you’re getting tired of hearing Robinson.” That was in 2009. I haven’t recovered from that me talk, but I’m going to make you an offer now.” And I said, yet. I’m still worth over $1 billion, but I haven’t been able “So listen very carefully to me.” And the class really listened. to move the peg back up. 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 How did that feel personally? bank account. You’re worth a lot of money,” and then I looked PICKENS: It hurt. It stung, it really stung. I didn’t feel good at at them. “But the other part is I get to be you. I’m 18 years old, all. And I felt very stupid, too, at my age — I was 80 years old and I’m headed for college. Now you’re rich. And of course, — that I would let it happen to me, with as much experience we know we can’t do it. But I want to tell you how valuable as I’d had. I mean, it didn’t exactly catch me by surprise, but your chair is. It’s a lot more valuable than my chair.” And so

I was sitting there, and the counterparty to me on some com- I said, “You have to do it, nobody can do it for you.” Associated Press

22 Q2.2013 Korn/Ferry Performance. As important on the track as it is for lasting success.

Advice you can trust starts with a conversation.

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UBS Financial Services Inc. is a subsidiary of UBS AG. ©2012 UBS Financial Services Inc. All rights reserved. Member SIPC. 7.00_Ad_8x10.5_JP0405_AmaJ It’s Better The Higher at the To p You Go, the When the renowned Stanford neuroscientist Robert Sapolsky Less Stress began to measure the impact of stress in baboon society in Africa — You Feel research that has continued more than three decades — he made an unexpected discovery. Baboons, which live in large, closely knit By Glenn Rifkin 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

24 Q2.2013 Korn/Ferry

That’s all well and good if you live on a savanna and spend School of Government at Harvard, included military officers much of your day foraging for fruit, having sex with willing and government officials. In testing these high-level leaders, females and snoozing while your mate picks the nits out of it was discovered that, as with baboons, their cortisol levels your fur. But how does this relate to stress levels in human decreased as they rose through the ranks. primates? From the earliest days of organizational behavior As such studies are wont to do, these drew a widespread research, conventional wisdom presumed that the highest- but fleeting media response. It made for a good raised-eye- ranking leaders like chief executives, generals and political brow moment but seemed to promise little response in cor- leaders carried far more stress — that unwelcome byproduct porate boardrooms. For aspiring leaders, however, the study of leadership. The higher you rose in an organization, the set off a spark of interest and debate. If achieving the highest greater the demands, and with that came peptic ulcers and levels of leadership brings not only untold riches, vast power long, sleepless nights. Or so it was assumed. and influence, and in some cases, fame, could attaining a lofty But recently, a study released jointly by researchers at perch bring less stress as well? Harvard, Stanford and the University of California, San Diego, For members of the research team, the findings were pro- revealed that high-ranking leaders displayed lower levels of vocative. James Gross, a Stanford psychology professor who

stress than nonleaders. The study, conducted at the Kennedy specializes in research on regulating emotions, said that the James Bennett

26 Q2.2013 Korn/Ferry researchers were as surprised as anyone by the results. “We this social intelligence, it is not only good for their careers took a close look at leaders versus nonleaders and wondered but also for their health.” if we not only asked them how stressed they were but looked The Whitehall Study at the physiology through salivary testing that measured cortisol levels, would we see differences?” Gross explained. “There In fact, the Harvard-Stanford-San Diego study may not was a very clear difference between the two groups. Leaders be all that groundbreaking. It is not, for example, the first of reported less stress than nonleaders.” its kind. The famous Whitehall Study in Britain, which began The results triggered a second study of 100 more leaders in 1967, measured health issues and the impact of organiza- in an attempt to quantify the parameters. All leaders, after all, tional 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 stress, but the parameters were strikingly close. And its con- vary between a leader with one direct report versus someone clusions were startlingly similar to those of the recent leader- with 1,000 people reporting to him or her. ship study here. In fact, despite such varied parameters, the trigger for The two-part Whitehall Study tracked more than 28,000 stress came down to one crucial element. “The critical ingre- British civil servants of every rank, from top to bottom, over dient to having lower stress seems to be a perceived sense several decades. Despite conventional wisdom and the expec- of control,” Gross said. “We found that the greater your level tations of Sir Michael Marmot, the study‘s director, the high- of leadership responsibility, the more control you have, the est-ranking workers did not have higher levels of disease- less stressed you are.” inducing stress. Indeed, Marmot‘s efforts demonstrated that Acknowledging that with global political and economic between the ages of 40 and 64, civil servants at the bottom uncertainty rampant, stress levels are rising for everyone, the of the Whitehall hierarchy had a mortality rate four times researchers asked, “If you are a leader in uncertain times, does higher than those at the top. that make you more stressed than everybody else?” The con- “The remarkable finding, which ran counter both to my clusion: No, because these leaders are able to assert more con- expectations at the time and, I think, most other people’s, trol over their world and have additional resources at their was, firstly, just looking at heart disease; it was not the case disposal to address the challenges. that people in high-stress jobs had a higher risk of heart The study said: “Occupying a position marked by a large attacks,” said Marmot in an interview at the University of number of subordinates and possessing substantial author- California, Berkeley. “Rather, it went exactly the other way: ity over one’s subordinates are two aspects of leadership that people at the bottom had a higher risk of heart attacks. confer such benefits. That these positions elevate one’s psy- “Secondly, it was a social gradient. The lower you were chological experience of control is not surprising; they are in the hierarchy, the higher the risk. So it wasn’t top versus likely to be marked by prestige as well as objective power bottom, but it was graded. And, thirdly, the social gradient and influence.” applied to all the major causes of death.” This level of social control, a personal sense of power and Instead of looking specifically at cholesterol levels or the ability to get people to listen to what you say are more blood pressure, obesity and diabetes, the study illuminated likely to lead to lower stress levels than, say, high levels of the onset of all the major causes of death: heart disease, gas- compensation. Certainly, an executive making $30 million a trointestinal disease, renal disease, stroke, cancers unrelated year in salary, bonuses and stock options will fly a private jet, to smoking, as well as accidental and violent deaths. which reduces the stress of air travel. But “the critical ingre- What stands out about the Whitehall Study is that inter- dient, the kind of control that seems to affect stress, is social views with civil servants over the years pointed to the same control,” Gross said. “This is good news for aspiring leaders. outcomes as Sapolsky’s baboon research and Gross’s new As they develop more and more leadership skills and accept stress study. It isn’t as much about the sheer amount of stress more responsibility, they can look for opportunities to de- but rather the perceived and real absence of control by non- velop more social ties to those in their organizations, and leaders at lower-level positions. Quoted in a Wired magazine this sense of personal power is really stress-buffering. As article, Marmot noted: “Researchers call it the ‘demand- they move through the ranks and if they can work to develop (continued on page 29)

Briefings on Talent & Leadership Q2.2013 27 The Ooda Loop

ye Barcott, a special adviser made quickly before the situation esca- in combat has less to do with the amount to the CEO at Duke Energy in lated into an ugly and dangerous scene. of control and more to do with being Charlotte, N.C., and a former “I needed to go out with the Iraqi in the service of others. When you are RMarine captain, brings a radi- 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.” in 2006. There, Barcott encountered a From his work with the Iraqi police, The Marines, in fact, have a decision- 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 On one memorable day, Barcott got 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 german was the 11-year-old. For Barcott, who also founded and a time of war when the stress is high. Responsible for “human operations,” ran an aid organization in the Kibera “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 translat- ing 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- tain the anxiety you feel, which doesn’t the city. Barcott himself joined the Iraqi 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.” Associated Press

28 Q2.2013 Korn/Ferry control’ model of stress, in which damage caused by chronic you don’t occasionally go into stress survival mode, but I don’t stress depends not just on the demands of the job but on live there.” the extent to which we can control our response to those de- For Goings, the absence of control is the more familiar mands.” If a man or woman has “a high degree of control over territory but not a place that guarantees a negative experience. work, it is less stressful and will have less impact on health.” “I push back on that theory,” he said. “The way my people thrive here is by building one-on-one relationships of trust. Far-reaching Implications If you do that, you don’t need control. I believe that all a com- Before today’s leaders lean back in their Aeron chairs pany is is a collection of people and the company that has the and contentedly put their feet up on their desks, they must ability to recruit, develop, empower and reward the best peo- be aware that the generalizations spawned by such studies ple wins in the end.” are replete with gaping plausibility holes. Goings’s theory resonates with small-business owners For many leaders, this smacks of a chicken-and-egg situa- as well. Tom Tremblay, owner and president of the Guardair tion that pushes the theoretical up against the individual Corporation, based in Chicopee, Mass., a manufacturer of realities of life at the top. For example, Rick Goings, CEO of pneumatic powered tools used for industrial cleaning and Tupperware since 1992 and a former Navy officer, is skeptical maintenance, is convinced his stress levels are impacted about the Harvard-Stanford-San Diego study. “I ask myself more by his company’s profit margins than by his own sense this question, Does it mean that leadership leads to lower of control. stress or that people who are predisposed to lower stress are “I think stress is inversely proportional to the level of better leaders?” talent in your management team,” Tremblay said. “If your If you believe that leaders tend to self-select and those margins are high enough, you can hire top talent and your who successfully maneuver their way to the top do so be- stress level will go down. High margins give you the ability cause they handle stress far better, then the study may be lit- to pay people more and in theory, you get better talent and tle more than a self-fulfilling prophecy, according to Goings. can attract people from a wider pool. I sleep soundly because A Buddhist who has been practicing transcendental medi- I’ve got a good management team.” tation for 35 years, Goings doesn’t believe a leader can exert The Minneapolis-based leadership consultant Steven enough control over his or her environment to eliminate Snyder agrees. In his new book, “Leadership and the Art stress-inducing challenges. of the Struggle,” Snyder acknowledges that with rapid “This is what I try to teach my direct reports,” he said. “I advances in technology and the instantaneous results of can’t control all of these economic circumstances. I can’t con- a leader’s action, the struggle has seemingly increased at trol what Chavez is doing in South America or what happened the top of organizations.

James Bennett in Egypt. But I can control how I react to it. I’m not saying But that perception is mitigated by organizational

Briefings on Talent & Leadership Q2.2013 29 dynamics. “What do we know about executives who rise to You develop a resilience, a hardiness and the capacity to learn higher levels in an organization?” Snyder asks. “The first from those experiences. Having overcome adversity — that is thing we know is it is a selection process. An individual be- what takes these leaders to the top.” comes selected to higher levels of an organization based on In addition, Bennis points out, leaders find themselves a set of things, including the ability to adapt to the struggle. with the perks of success — support, prestige, even the fawn- Individuals who show the ability to channel their energy in ing subordinates — that all help ameliorate the stress that so adaptive ways are able to cope with situations better than many feel at lower levels in an organization. those who are not. Therefore, they get more opportunity to To that end, it may be that the important question about rise to higher levels.” stress isn’t how much a leader feels but how much a leader According to Snyder, one of the crucial adaptive measures pushes that stress down into the organization. Kevin Cash- is the “ability to center yourself, to calm yourself down, keep man, a senior partner at Korn/Ferry International, has writ- your emotions from getting in the way.” To this end, he is urg- ten extensively about stress in leaders and believes that cer- ing aspiring leaders to embrace centering processes like med- tain types of stress — eustress (or good stress) rather than itation and exercise. distress — can be extremely positive and a catalyst for pro- Researchers have found convincing evidence that execu- ductive behavior. tives who embrace a prescription of more exercise and better “The self-aware leader asks themselves, ‘Should I buffer or eating habits not only reduce stress but improve their leader- reduce stress below me via openness, collaboration, listening ship performances. Studies indicate that executives who ex- and empathy? Or should I drive more stress downward due ercised regularly had significantly higher ratings from their to urgency or importance,’ ” Cashman said. “The less self- peers. Higher energy levels, increased productivity and bet- aware leader mindlessly transfers stress to others, unaware ter motivation were also reported outcomes, while executives that their behavior is actually draining people of the energy who did not exercise or did so only sporadically had signifi- needed to perform, further increasing the experience of cantly lower ratings. pushing stress downward.” In addition, excessive body weight, which has become a Feeling the Calmness global health issue, negatively influences an individual’s ability to cope with stress. Being fit and healthy mitigates the For Tupperware‘s Goings, a high-performance organiza- negative outcomes associated with stress. tion is one in which stress is sporadic but where great leaders Nina Godiwalla, founder and president of MindWorks, a grow and start to feel the calmness of their lofty posts. “Once Houston-based consulting firm that provides stress manage- you feel that calmness, you are a better leader,” he said. “You ment, leadership and diversity training for both nonprofit can get higher in organizations of value.” and for-profit organizations, is also convinced that stress is At Tupperware, there are four pillars upon which leaders more about the individual. are judged, Goings said. “Stress levels depend much more on the person than the 1. How are people as operators? Do they know how to position,” Godiwalla said. “If you put two people in similar write, to do finance, to develop the basic skills to do their job? roles, how they handle themselves and deal with those situa- 2. Do they have I.L.S. — or inspirational leadership skills? tions determine their stress levels. Learning how to manage “This is not about being a rah-rah person on a stage,” Goings your own stress is something you can control, but most peo- said. “It about getting people to really trust you and being ple don’t see it that way. To say everyone in a leadership posi- very smart.” tion is less stressed is a very big generality. What I’ve seen is 3. Do they have intellectual curiosity? the pressure to perform increases as you move up the hierar- 4. Have they had enough seasoning? Effective leaders grow chy and the stress grows. Even if you are a CEO, you have a into their roles over time and experience. board of directors; so someone is always above you.” “Everybody in America who comes out of business school The leadership guru Warren Bennis sees solid arguments thinks they are ready to be a CEO,” Goings said. “I am a be- on both sides of the debate. Ultimately, Bennis, a proponent liever that great leaders are grown. On the journey, they learn of learned leadership, believes there is truth to the Harvard- the tools to manage stress personally. They know it’s funda- Stanford study, but it is based on a foundational experience mental that those at the top learn to manage stress or they along with the privileges of rank. won’t have success with a large organization. I break the word “When you reach the top level, you’ve had to go through ‘responsibility’ into its parts — response and ability — and many success experiences in your life,” Bennis said. “Along that’s what we try to teach people.” the way, you develop support groups; you’ve seen situations before, gone through stresses earlier in your career. Many Glenn Rifkin has written for The New York Times, Fast Company, Strategy have been fired or had a child with an illness or been divorced. + Business and many other publications.

30 Q2.2013 Korn/Ferry

Totalot l Recallr c ll By David Berreby

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. O 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 Univer-

sity’s medical school and his colleagues. In 1962, Offer launched a long-term study of Matt Wood

32 Q2.2013 Korn/Ferry Credit adolescence, for which his team interviewed 14-year-old boys sions about such events. Brains perform both jobs well. After about their lives and attitudes. In 1991, Offer had a different all, being able to recall lessons learned from past experience team of researchers re-interview 67 of the 73 original sub- can increase an animal’s chances of survival. That is one rea- jects, who were by then middle-aged men, asking more than son formidable brains have evolved in creatures as different two dozen questions about what they had said and felt “when as octopuses, parrots and apes. Evolution demanded an ability you were in high school.” How closely did their answers match to recognize past experience and apply the information to what they had said and reported feeling in the past? No better future behavior, in a world with predators and rivals but no than chance. video recorders or Facebook pages. In fact, personal memories can be complete fabrications. Memories help us deal with an environment of dangers, Remember that iconic photo, by Alfred Eisenstaedt, of a sailor opportunities and strong emotions — an environment where kissing a nurse in Times Square on the day in 1945 that Japan getting the gist (friendship) is important and getting details surrendered to the Allies? In subsequent decades, 11 men and (what time exactly did they shake hands?) is not. So memory three women came forward to say they were the people in the — both the personal kind that individuals carry and the collec- photo. None was lying; all were certain in their memories of tive kind that makes up the shared past of workers in an orga- that day. But only two could have been right. Far from being nization — is a mighty mental tool. It’s just not the tool most unusual, this belief in false memories is easy to instill. Psy- people think it is. chology researchers have been doing it to unsuspecting under- Why, then, do most of us have such misplaced confidence graduates for years. in our memories? Blame technology — not just because it sup- For example, a few years ago, Maryanne Garry and Kim- plies us with photos and recordings to correct our memories, berley A. Wade of Victoria University of Wellington in New but because it also supplies the metaphors we use to under- Zealand were able to convince 10 out of 20 young adults that stand it. they had gone for a hot-air balloon ride as children — by Today, it seems obvious to speak of “flashbulb” memories showing them doctored photos of their childhood selves on and experiences that were “like a movie,” as if photography such a trip. A later experiment compared doctored photos and video recording must be the way that brains work. But with made-up narratives about the fictional balloon ride. The historians of science have long noticed that “thought leaders” stories convinced an even higher percentage of volunteers in every era have compared the mind to the latest technologi- that they had experienced a balloon flight years before. cal innovations of their time. And early in the 20th century, Of course, natural disasters and childhood excitement the latest and greatest tools of a modernizing, organization- evoke strong emotions. How about the memory of the mun- centered society included the camera and the filing cabinet, dane details of a routine workday? We all like to think we can notes Alison Winter, a historian of science at the University accurately recall who met with whom, who said what, what’s of Chicago. And so, unlike ancient scribes who thought mem- 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 Co- lin 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). I 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 notic- ing what’s happening in the world or forming lasting impres-

34 Q2.2013 ory was like a wax tablet, storing impressions and then replac- Fortran punch cards or sectors of a hard disk. For one thing, ing them with new ones, people in the 20th century assured the computer model leads us to think of memories in binary themselves that each memory was a discrete and permanent terms — is your recollection of your fourth birthday party record. That record, they believed, would be stored in the mind “true” or “false”? Then, too, if you think your memories are until it had to be retrieved. Though the computer revolution perfect, permanent records of real experience, then any mem- replaced Kodak prints and paper files with digital records, the ory trouble must be a retrieval or storage problem. The memo- metaphor didn’t change: Modern technology “remembers” by ries must be in there somewhere, so call the hypnotist or creating discrete, changeless and permanent records — and break out the sodium pentothal. that makes it easy to assume, mistakenly, that human brains work the same way. n either assumption — that memories are discrete, As Winter points out in her recent book, “Memory: Frag- permanent and unchanging, or that recollections are either ments of a Modern History,” this notion of memories as un- true or false — jibes with what researchers have learned. changing records had many practical consequences. It spurred, Here’s why. for example, the 1950s quest for “truth serum” (a drug that As I type these words, a digital representation of them would strip away confusion and deception and lay bare the will be stored on the hard drive of my computer, as a mag- contents of the mental file cabinet), and a vogue for hypnosis netic pattern on a spinning platter that (I hope) will stay un- as a tool to recover those supposedly 100 percent accurate mem- altered through time, no matter what is going on elsewhere ories that had been buried or misplaced. This metaphor also around and in my computer, and which will always be in girded the legal system’s confidence in witnesses’ ability to that location until it’s erased or the disk fails. But my mem- recall “the whole truth and nothing but the truth” whenever ory of working out this paragraph is dispersed among differ- they had to. It led to dependence, especially, on eyewitness ent brain regions, involving cells that, when they aren’t en- testimony. What could be more reliable than a witness’s mem- gaged in this memory, are performing other jobs. Each time I ory of things she had seen with her own eyes? (In fact, eye-Nrecall writing this paragraph, a pattern of activation occurs in witness testimony is unreliable, because of the memory ef- various brain regions. Each time, the pattern will involve dif- fects already mentioned.) ferent cells, and thus be affected by their different histories— A metaphor reveals some aspects of the truth, but hides their participation in other patterns, as the brain uses them others. The concept of memory working like a computer disk to make and recall other memories and perform other tasks. helped scientists think systematically about different kinds If memory is like a map, then, as the playwright and actor of memory. Though inaccurate, the metaphor contributed to Simon McBurney has written, it’s a map where we discover a better understanding. each time we read it that thousands of roads have been added

Matt Wood In reality, human memory does not work like a pack of and all the contours have shifted. “The job of remembering,”

Q2.2013 35 aAn organization’s shared recollections of the past will define its possibilities for the present.

he wrote, “is to reassemble, to literally re-member, put the shown that a working group’s memory of details can be al- relevant members back together.” tered by whoever talks the most during a meeting. Interac- This is why remembering isn’t finding the right file and tion with other people is one of the main reasons memories pulling it up. Rather, it’s more like singing a song you think can change from day to day. you know. What you remember is recreated each time, with This means that the notion of collective or communal materials that vary in availability and quality every time you memory — the memory of an organization or community — do the task. This means that the boundary between memory is not just a metaphor. Shared patterns of thinking and behav- and imagination is easily crossed. It is often said that we can- ior prod members of a group to harmonize their memories. not escape the past; but because our memories are created The great British psychologist Frederic Bartlett demon- anew right here, right now, it’s also true that the past cannot strated this effect in experiments with Cambridge under- escape us. We create it in the present. graduates in the 1920s. He would ask students to read a folk- One consequence of this is that when we are engaged in tale from a Native American tribe in faraway Oregon, then the present tense, here-and-now activity of recalling the past, wait a few hours or a few days, and then retell it. we’re susceptible to what others are saying and doing around Of course, students trying to recreate the tale left out us. Stress, social pressures and even an excess of positive feed- many details. But Bartlett was more interested in what they back can affect how well memory works. Such factors also have included — because often those details had not been in the an effect on memory content. Studies have found, for example, original story. Sometimes the students would transform Na- that listening to a speaker give a selective account of an event tive American objects or activities into their ancient British can induce listeners to remember it in the same way, leaving analogs, recalling “acorns” and “rowing” where the tale had

out the same details that the speaker “forgot.” It has also been spoken of peanuts and paddling. Sometimes they would add Matt Wood

36 Q2.2013 Korn/Ferry An organization’s shared recollections of the past will define its possibilities for the present.

details from their general impressions of American Indians, low employee turnover, all of which meant lower costs. But recalling “that Indian has been hit” as “that Indian has been many companies fail to maintain a culture of high standards hit by an arrow.” over time. The reason? They’re trapped in the storage-and- In making memories about this unfamiliar story, the stu- retrieval model of memory, so they treat organizational mem- dents were depending on their own shared culture — their ory as an archive of dead facts about the past. Instead, they own ways of living and their shared stock of knowledge about should treat it as an ongoing creative activity that takes place American Indians. Each one thought he was simply recalling in the present. what he had read, when in fact he was creating a blend of new “Tradition is a chain of memory,” Feldman writes, “the information and what he had learned through his upbringing. mechanism of social and cultural reproduction that enables organizations to endure by maintaining the same identity n his first address as president of the United States in over time.” Like recollections of an individual past, collective 1861, Abraham Lincoln spoke of “the mystic chords of mem- memories are not files to be retrieved in the same way every ory” that bind Americans together, which he suggested might time they are needed. Instead, organizational memories, like prevent a civil war. the personal kind, must be created fresh, with today’s con- Lincoln’s musical metaphor is apt. People who live and cerns and today’s emotions. work together tend to harmonize their memories about the That sounds a bit like the latest descriptions of memory’s past they share. workings in an individual life. Indeed, it can seem that com- That means that their leaders can have a huge impact — panies with effective traditions have anticipated today’s sci- by actively engaging with communal memories as they are ence of memory. They do not simply quote their founder once created, in order to shape them. a year in a report or distribute ethics guidelines at an orienta- But as Lincoln spoke about mystic chords in 1861, rebels tion meeting now and then. Rather, they nurture their orga- in the southern United States showed little interest in sing- nization’s memory, and their leaders actively shape it. ing in the “chorus of the Union” that he described. In fact, Consider, for example, the famous “credo” of Johnson & Southerners had been seizing forts and weapons from the Johnson, which spells out the company’s responsibilities to federal government. But the tense, uncertain days before the its customers, employees, communities and shareholders. American Civil War broke out are remembered as a period The credo, written 69 years ago by one of the sons of company in which the possibility of peace remained. In describing founder Robert Wood Johnson, has been referenced by man- his version of the American past, Lincoln helped bolster that agement in decisions big and small for decades. It has been narrative in the minds of his constituents. effective not just because it is literally written in stone at com- Memory for an organization, community or nation, then, pany headquarters and framed on the walls, but because exec- has this in common with memory for an individual: Rather utives often refer to it to explain their actions and thinking. than a metal cabinet full of unchanging office records, it is an It serves as a guide even today because the company strives activity that takes place in the present. It can, and will, be in- to make it a part of today’s decision making. fluenced by present circumstances. And that is an opportunity In fact, in April 2012, in his first shareholders meeting, for leaders, because an organization’s shared recollections of J&J’s new CEO, Alex Gorsky, spent more than half an hour the past will define its possibilities for the present. They who discussing the credo, relating each of its tenets to an anecdote shape the past also shape the future. that, he said, illustrated the principles. “The credo is so rele- Does an actively tended collective memory have any prac- vant and so essential to who we are,” Gorsky said, according tical consequences for an organization? Research suggests to a report in the Newark Star-Ledger. “It’s part of why the that the answer is yes. Steven P. Feldman of the Weatherhead company is so successful.” School of Management at Case Western Reserve University It was, wrote reporter Susan Todd, “as if the company in Cleveland argues that companies often overlook collective was reaching into a pocket to remind itself of the details of memory when trying to foster a positive and ethical organi- a favorite old map — or to prove to investors that it had not zational culture. lost its way.” Such a culture has many benefits. In one study, Feldman looked at 22 companies that had maintained high moral stan- David Berreby ([email protected]) writes the Mind Matters blog dards over decades and found that they had more effective re- for Bigthink.com and has written about the science of behavior for a sponses to crises, higher customer loyalty and extraordinarily number of leading publications.

Briefings on Talent & Leadership Q2.2013 37 The Purpose of Strategy is to

WINAn 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 University of Toronto. Over the course of nearly 10 years, when Lafley was CEO, the two men met regularly to discuss P&G’s challenges and

prospects and to review its strategic issues and opportunities. Gary Moss W38 Q2.2013 Credit

Briefings on Talent & Leadership Q2.2013 39 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. means. In our view, it means three things — uniquely posi- When he took over as chief executive, P&G’s market capital- tioning a firm in its industry, creating sustainable advantage ization was in the $50 billion to $60 billion range. When he and delivering superior value versus the competition. It’s im- retired in 2010, it was $160 billion. Gone were less-strategic portant that you make the necessary choices to get all three brands and businesses. Lafley sharpened P&G’s focus to con- elements right. ” centrate on household and personal care products. To that end, he acquired the razor maker and personal grooming products One interesting idea in the book is that leaders don’t like company Gillette, which accounted for nearly half of P&G’s to make choices, they like to have options. What did you growth in market value. mean by that? With decades of experience between them, Lafley and Mar- Lafley: There’s a mindset among CEOs and other leaders that tin decided to capture their learning in a book called “Playing they don’t want to get pinned down or painted into a corner. to Win: How Strategy Really Works” (Harvard Business Review They want to keep all their options open. Why do they want Press). The book draws on the foundations of master strategists that? Because they don’t want to take on the risk of making a like Peter Drucker and Michael Porter, a professor at Harvard bad choice or a wrong choice. But the fact is, strategy is all about Business School. (Lafley worked with Drucker, and Martin making choices — choosing where you’re going to play and worked with Porter while a consultant at Monitor Group). But how you’re going to win, along with what winning means. even more importantly, it is based on the insights and real- world experiences of Lafley when he was at P&G’s helm. Is it fair to say many CEOs choose to play but not To explain their perspective on strategy, Lafley met with necessarily to win? Michael Distefano, Korn/Ferry International’s senior vice Lafley: Yes. That’s why so many companies turn in lackluster president and chief marketing officer, and Joel Kurtzman, results, because they just want to stay in the game — they just editor-in-chief of Korn/Ferry Briefings on Talent & Leadership. want to hold on to their jobs. But what’s really going on in the What follows are excerpts from their conversation. CEO universe? In the ‘80s, the average CEO served for something like eight to ten years. In the last couple of years, the Why did you write this book? average CEO’s tenure is three or four years. Why is that? It’s Lafley: To give CEOs, business and functional leaders, man- because the stakeholders aren’t happy with the results she or agers of all kinds a simple, practical guide to business strat- he is delivering. And why aren’t the results good? I’d argue it’s egy. … A “do-it-yourself” playbook that would encourage clearer, because they don’t know what winning means — and they better choices and result in better performance and results. won’t make the hard choices that really distinguish and sepa- The basic idea was to bring together a practitioner, which is rate their company from the rest of the pack. what I am, and a theorist, which is what my co-author, Roger Martin, is, even though we both practice and we both concep- Some CEOs say, “Our strategy is to be opportunistic.” tualize. We both believe you can only really understand strat- Do you buy that? egy by bringing those two perspectives together. That’s why Lafley: No. It’s a rationalization. It’s not a strategy. we included P&G’s performance results in the book from when I led the company. But there’s something even more important What about CEOs who say strategy and planning are the we wanted to convey. same thing? Lafley: That’s also a common mistake. Planning and strategy What’s that? are not the same. It’s also a mistake to equate goals and strat- Lafley: For a lot of reasons, CEOs, presidents, governors, may- egies, or vision and strategy. I would argue if you spend a few ors, heads of hospitals and schools, don’t understand what thoughtful hours with the right team of managers and advis- strategy is all about. We wanted to help them. ers, you can frame 80 percent of the critical choices you need to make to create a good strategy in virtually any industry. What is strategy all about? Lafley: It’s about winning. It’s not about just playing the game. If you had two or three hours, what would you focus on?

It’s about winning, and you need to be very clear what winning Lafley: I would want to understand the industry. I would Gary Moss W40 Q2.2013 Korn/Ferry

want to understand the consumers and customers. I would to the very specific ways we select technologies and design want to understand the firm’s capabilities and costs. I would and formulate our products. It leads to the very specific way want to understand what the relevant and important com- we choose to go to market in certain distribution channels. petitors are going to do. And then I would want to go through what winning means. What would be an example of that kind of differentiation and effort? Can you give an example of what you mean by winning? Lafley: Olay is an interesting story. We didn’t create the brand. Lafley: Winning is all about uniquely, or at least distinctively, It came to us when we acquired Richardson-Vicks in the mid- positioning your business or brand, product or service, to de- ’80s. When we got it, Olay was a low-end skin care product that liver a better experience and better value to a certain group 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.

What did you do? 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 of customers to attain competitive advantage versus certain big segment of the skin care market and the high-end Shiseido, competitors. At P&G, I often talked about winning with “those L’Oreal and Lauder prestige brands were sold in department who matter most” — a specific segment of consumers— and stores and specialty stores. Their target market was women “against the very best competitors.” When you win with con- in their 50’s. And their products were promising wrinkle re- sumers and against competition, you deliver superior value duction and even elimination. In our consumer research, we to your stakeholders — shareholders, employees, et al. A good learned that a lot of women started to worry about the condi- example at P&G is SK-II, a small, high-end skin care brand we tion of their skin at a much younger age — in their 30’s. And acquired with the Max Factor business. In that business, we these women were concerned about more than just wrinkles needed less than 1 percent of women to buy SK-II to win. But — skin texture, fine lines, age spots, sun damage. … The more we needed the right 1 percent: highly skin-involved women we learned from women about their skin care wants and needs, who use several skin care products every morning and every the more convinced we became that we could make two impor- night. We needed women who were really into their skin tant strategic “where to play” changes for Olay. First, lower the care and appearance, and were really loyal to their skin care target point-of-entry age for anti-aging skin care products from products and brand. But we only needed 1 percent of them the 50’s to the 30’s. And, second, broaden the range of treatment to build a leading, high-end niche business with very high benefits in Olay’s anti-aging products from only wrinkles to consumer loyalty and strong profitability. all of the important signs of aging — what Olay eventually called the “seven signs of aging.” These two strategic decisions That requires strategy rather than opportunism, correct? effectively increased the size of the fast-growing anti-aging Lafley: Yes. Our strategy leads to the very specific consumer skin care segment, further accelerated growth of this segment, and market segments we serve and to the very specific, highly and gave Olay an opening to enter — re-enter, really — the seg-

differentiated positioning of our brands and products. It leads ment serving younger women with broader-benefit products. Gary Moss

42 Q2.2013 Korn/Ferry Did you do it using the same products? “promises made, but not kept.” And yet the promises kept get- Lafley: No. We redesigned and reformulated the products, ting made. So we had a very simple approach with Olay. If we and we created boutiques or product lines, like Total Effects, made a promise, we were going to keep it. Our fundamental Regenerist and Pro-X, that offered different product segments approach with Olay and its consumers was a partnership. We’ll at different price points. We also found a technology partner provide the brand and the products, but you have to use the in Sederma, a French company. They had a unique technology products in your daily skin care regimen. If you buy the right and ingredient that worked well in our product formulations. products, and use them together, and you use them regularly We then made the next critical strategic where-to-play deci- — every day, every week — over time, you’ll see meaningful sion. Working with discount store and drugstore retail part- improvement in your skin’s condition. So, what we did with ners, we created a new segment called Masstige — positioned Olay was to promise continual improvement. We didn’t prom- between low-priced mass skin care brands, where Olay had ise gorgeousness overnight. Our promise was continual im- been, and high-price prestige brands. We re-priced Olay Total provement over a lifetime. It was a credible promise. The Effects right below Clinique’s opening price point, in the mid- products delivered for many women. And enough women priced $15 to $25 range. We designed a “prestige-like” pack- bought Olay to take sales over $2 billion by 2007.

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 With Olay, was your strategy to focus on profits? against prestige brands. Then we went to retailers like Target, Lafley: No, on consumers. We asked ourselves, “Can we create Wal-Mart, CVS and Boots to ask if they would join us to create enough new Olay consumers with our brand and our prod- a better skin care shopping experience in their stores — a ucts?” And “Can we create a better shopping experience” in boutique-like merchandising approach that would bring mass discount and drug stores?” And then we asked, “Can we Masstige to life for shoppers and switch some skin care brand build a business of about $1 billion?” In 2000, when we started and product purchases out of prestige channels and into to redo Olay’s strategy, if you told me the brand was going to do mass channels. $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 As a strategist, how did you know the decisions you products that looked “prestigious” but were mid-priced and made were the correct ones? mass-marketed. That was our strategy — reframing anti- Lafley: I didn’t. As we point out in the book, a potentially win- aging, lowering the point of entry and creating the Masstige ning strategy shortens your odds, it does not guarantee suc- segment — to disrupt prestige and reinvigorate mass market- cess. Business is inherently risky. Customers are demanding. ing. Over time, we discovered that a lot of women didn’t like Competitors are formidable. To improve our chances of suc- a lot of things about the department store prestige shopping cess, we looked at industry attractiveness and whether there experience. They didn’t like the pressure from salespeople was a segment we could serve. We looked at whether there on commission. Ultimately, we learned women were buying was value we could create for the consumer and for the chan- certain products in the department store, other products in nel and customer. And, of course, we looked at whether there the discount (store) and drugstore, and increasingly replen- was value for us. And then, we looked at P&G’s capabilities. ishing products online. More and more women were shopping across channels. P&G’s mass retailers saw this as a huge What were your metrics? opportunity to shift business into their stores. Lafley: Three things. We looked at revenue growth, gross and Woperating margin growth, and various measurements of cash How important were the new ingredients to the product? flow productivity, depending on the business capital struc- Lafley: Very important. Olay’s products had to deliver… and ture. These could be return on capital employed, return on they did. Since time immemorial, the story of beauty care was inventory investment, and so on. And then, in addition to

Briefings on Talent & Leadership Q2.2013 43 these three things, we would look at the competitive environ- to use pharmaceutical drug products isn’t made by the con- ment. And then we’d take a step back and say, “Where do we sumer. It’s made by the doctor. The fact is P&G’s strategic busi- want to be 10 or 20 or 30 years down the road?” ness model focuses on household and personal care products that are bought weekly and used daily. That’s not the business You sold a lot of P&G’s businesses. How did you make model for pharmaceuticals. So we sold that business. 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 choice. We wanted to be in male grooming and personal care businesses and our capabilities and, of course, the market. — including skin and hair care. We wanted to be in female Pringles, for example, was a global snacks brand, but I wanted grooming. And we were interested in their Oral B toothbrush the company to move out of food and beverages. business to strengthen Crest’s position in oral care. But the most important reason we went for Gillette was that Gillette So you sold Pringles for strategic reasons? was a great fit with P&G’s strategic capabilities. We figured Lafley: Yes. It wasn’t in an attractive industry for us. To un- with our consumer knowledge and their category-leading derstand if an industry is attractive, you have to ask, are there positions, there would be opportunities. We thought our customers and consumers you can serve in a unique way to ability to innovate with them would be a big plus. The global create value for yourself? You have to ask, how do you stack reach and scale of our businesses was a good match. P&G was up against the competition? Do you have the right capabili- stronger in China, Gillette stronger in Korea. Together, we ties and costs for the industry? And, you have to ask about the could see our way to billion-dollar businesses in Brazil and competition. You have to ask yourself those questions regard- India. Gillette and P&G combined were much stronger parting every business you’re in, and with Pringles, none of those ners with our suppliers and retailers. worked for us. It all boils down to the classic Peter Drucker question: What businesses should I be in? And what business The acquisition added a lot to the value of your company, should I not be in? When I joined P&G in the mid-‘70s, we didn’t it? were a food and beverage company, a paper company and a Lafley: Gillette added $10 billion to our sales and $50 billion cleaning products company. When I left in 2010, we were a to our market cap. But, more importantly, it opened up new household care and personal care products company. All the categories and markets for us. In 2000, our market cap was food and beverage businesses were gone. less than $60 billion. In 2010, our market cap was about $160 billion. So we added about $100 billion of market cap in the Sounds like strategy and capabilities were the most im- first decade of the new millennium, with about half of it ac- portant determinants of what businesses stayed in the quired, mostly with Gillette. The other half of our market cap P&G portfolio. growth was organic. Our top-line compounded annual growth Lafley: Yes. You have to face facts and say, “You know, we’re rate was 11 percent, 5 percent organic, 6 percent acquired. Our really not competitive here.” Which means you’re faced with bottom-line growth rate was 12 percent earnings-per-share the hard part — making a choice. We got out of the pharma- growth. Importantly from a strategic perspective, in early ceutical drug business. We had a big success with Actonel for 2000, 55 percent of our revenue came from P&G’s core strate- postmenopausal osteoporosis, and we were on the verge of a gic businesses. By 2010, 80 percent came from core strategic huge success with Intrinsa, a testosterone patch for women, businesses. In 2000, P&G had 10 brands that did $1 billion or which was approved in Europe and Canada but not approved more in annual sales. In 2010, P&G had 25 billion-dollar brands. 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 Did all that growth result from the strategic choices global leaders like Pfizer or Johnson & Johnson or Novartis. We you made? didn’t think we could keep up the huge research investment Lafley: Absolutely. These results came directly from focusing that’s required in that business. And we couldn’t compete on on our three most important strategic decisions — grow P&G’s regulatory. To be in that business you need a huge regulatory core, extend into beauty and personal care, expand into emerg- operation to work with the U.S. Food and Drug Administra- ing markets. Fortunately, it worked. It shows just how power- tion and its equivalent organizations around the world. And ful a few strategic choices can be. We wrote the book to help we couldn’t keep up with all the lobbying that’s required in other CEOs, business unit (heads) and functional leaders make that industry. P&G’s lobbying office in Washington has three better strategic choices for their companies. The essence of people in it, while the health care industry has one of the big- strategy is making choices to distinctively position your gest lobbying groups of any industry. And, finally, the decision company to win. W44 Q2.2013 Korn/Ferry Luxury Comes in Many Forms Exclusive Content Available

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R0512ATAB.indd 1 4/12/12 1:35 PM Massachusetts Instituteof Technology Photo byAndy Ryan MIT MediaLab buildinginCambridge, Mass.

Credit To stay at the cutting edge, MIT went outside a its comfort zone renegade in the lab By Lawrence M. Fisher

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 single- speed 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 Credit from me, and I felt fundamentally welcomed.”

Q2.2013 47 Joichi Ito, director of MIT’s Media Lab. Ito may not have the sort of grand vision Negraponte Ito sees it as part of his mission that more of the had for the lab when he created it, but he does have an lab’s programs are available to the public, not just paying ambitious — and potentially disruptive — agenda. He means sponsors. He also wants to make students and faculty more to “open” the lab, both literally, by inviting more outsiders in, available, using the social media tools that are second nature and metaphorically, in the Open Source sense of the word, to him, and to the generation currently attending MIT. Ito to make it less like Apple and more like Mozilla, creator divides time into BI and AI, as in Before the Internet and of the open-source Web browser, Firefox. He is already After the Internet, and in his vision of AI, owning an asset shaking things up, bringing in a diverse group of director’s is now less important than sharing it, whether the asset is fellows, most of whom share his lack of a formal academic student and faculty talent or intellectual property. background, and striving to open the lab up to the kind “I’m shifting away from IP as a primary focus,” Ito says. of informal collaboration that typifies the world of Web “IP is a byproduct of a process. You can’t patent ideas, only startups. “To me, the Media Lab felt like a container. It was a processes. And we’re really good at ideas. We were doing little bit connected, but not real connected. I’m trying to turn the multi-touch screen a year before Apple. We do create it from a container into a platform: the Media Lab Network.” about 20 patents a year, and some of them are valuable, but a One of his first steps was to eliminate a senior faculty CEO is going to pivot their business a lot more rapidly after committee that his predecessor had established. New interacting with our students and faculty, and that’s so much projects now can go forward without passing through as more valuable. The real bang for your buck is that every two much bureaucracy, more akin to the spontaneity of Internet or three years, you’ll see something here that makes you startup launches than the deliberative way large corporations make a multibillion-dollar decision differently.” work. “We’ll see how it goes,” Ito says. “I’ve been able to Negraponte created the lab in 1985 to explore his make decisions rapidly that would have been political in the hypothesis that the broadcast and motion picture industry, past. People may argue with me, but they don’t get as upset the print and publishing industry, and the computer as they might have. Also, part of the position of director is industry would go beyond their already overlapping communicating, and I think the Media Lab has gotten more spheres of influence to a nearly complete merger. As attention since I came in. I think they wanted someone who Stewart Brand wrote in “The Media Lab, Inventing the can connect to high-level contacts around the world, which Future at MIT” (Viking 1987), Negraponte’s vision was that Nicholas did a lot of, but other previous directors did not.” 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. 48 Q2.2013 Korn/Ferry Global Strategy, Local Players Joichi Ito’s World of Warcraft Guild

lthough Joi Ito has started a number acquire weapons, capabilities and I see this in Joi,” says John Seely Brown, a Aof 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 World of Warcraft is play, but for Ito it 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. 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 investment is less than $100,000, and while he’s invested in first commercial Internet service in Japan. They couldn’t find hundreds of companies, he only boasts about four of them. space to rent, so he lent them the bathroom in his apartment. He sits on numerous boards, including the New York Times He served as CEO of PSINet Japan — the company that Co., the John S. and James L. Knight Foundation, and the John acquired IKK — for a year and eventually moved them into a D. and Catherine T. MacArthur Foundation. real office. With his portfolio companies and volunteer activities Thus began a remarkable career as a serial entrepreneur primarily in Japan and Silicon Valley, Ito spent years shuttling and angel investor. After leaving PSINet, Ito launched Digital between Tokyo and San Francisco, and at one point realized Garage, a Japanese Web solution provider and incubator, he spent more time on United Airlines than in his own bed. which he took public in 1999. The venture firms J.H. Whitney An inveterately social animal, he often stayed with friends in and PSI Ventures seeded his firm Neoteny (the word means his travels, like the Harvard law professor Lawrence Lessig “retention of childlike attributes in adulthood”) with $20 or LinkedIn’s founder Reid Hoffman, rather than in hotels. million, to serve as an incubator for new infotech companies. He has been a frequent speaker at events ranging from the When incubators fell out of favor with the bursting of the World Economic Forum meeting in Davos, Switzerland, to Internet bubble, Ito attempted to transform Neoteny into a the South by Southwest Conference in Austin, Texas, which traditional venture fund, but after funding Six Apart, a blog brings together technocrats, rock stars and independent company, he returned the remaining cash to the shareholders filmmakers. He may be the one person on earth who would and focused Neoteny’s resources on building Six Apart Japan. be equally welcomed by the bankers inside and the anarchists With his own funds, Ito made early-stage investments outside the next meeting of the World Trade Organization. in Kickstarter, Twitter, Technorati, Flickr, SocialText, Dopplr, In 2008, Ito and his wife, Mizuka, moved to Dubai Last.fm, Rupture, Kongregate, Etology Inc, Fotopedia because he wanted to gain a better understanding of the and other social media companies. He says his average Middle East, and he took over the leadership of the Creative

Briefings on Talent & Leadership Q2.2013 49 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 Commons, a nonprofit organization that has produced these people because they’re not part of the lab’s network, but alternatives to copyright for the distribution and sharing of bringing them in had substantial impact,” he says. original material. In this role, Ito became a vocal advocate of The lab is supported by close to 80 members, including emerging democracy and the sharing economy. some of the world’s leading corporations, and the Knight “The single most unique thing about Joi is his lateral- Foundation. These members provide the majority of the ness,” says Howard Rheingold, author of “Net Smart, How lab’s $35 million annual operating budget, but uniquely, do to Thrive Online” (The MIT Press, 2012). “Joi always has been not direct their research funding in any way. “We don’t have very comfortable communicating with and moving in very deliverables, and the funding is not based on grants,” Ito different worlds. He’s welcome at the hackers convention, says. “Grants are incremental; you ask for money for the serious one in Amsterdam, but he also will talk with something you’re already building and problems you the CEO of Sony. I don’t think anyone else has that kind of already sort of know the answer to. We’re answering reach. He knows most of the top journalists, and people in questions you don’t know to ask, and you can only do that the business world, but he also knows the rebels and the with undirected funding.” geeks. He has a very strong ideological dedication to the kind That the lab is essentially unfocused is a strength of liberty that the Electronic Frontier Foundation and the disguised as a weakness, Ito says. Focused research might Creative Commons represent, liberty for individual users to provide answers to finite questions, giving an incremental be creators of content and new kinds of companies. Yes, he return on a donor’s investment, but really big opportunities will deal with CEOs of giant companies and they will take his arise out of pattern recognition and the kind of peripheral advice, but he is very much on the side of not locking down vision that flourishes in an unfocused environment. the abilities of users to create things like Google in their Peripheral vision allows for more serendipitous discoveries, dorm rooms.” and almost paradoxically, leads to insights with greater Ito will need his talent for lateral thinking at the lab, impact. For example, the lab’s work in advanced three- which has evolved from its early consumer electronics focus dimensional printing might prompt a company to make the to a much more diffuse organization. Current projects run strategic decision to exit manufacturing altogether, a bigger an inconceivably wide gamut from folding electric cars to a decision than whether or not to produce a specific product. program in synthetic neurobiology, led by Associate Professor Ito says one of his goals is to broaden the lab’s donor Ed Boyden, which is inventing new tools for analyzing and base beyond corporate sponsors to include more foundations engineering brain circuits. And while the Media Lab has and wealthy individuals. “I want to see a much greater always been about crossing the boundaries of disparate emphasis on the social side,” he says. “I am connecting disciplines, its current mission goes a step beyond that, with philanthropists so the source of funding won’t only requiring a new word: antidisciplinary. be from corporations, and creating a social network with Ito explains, “Interdisciplinary is you have a biologist lots of people outside of academia. I see us shifting away talking to a chemist. Antidisciplinary means you don’t get to from consumer electronics to ecosystems and communities, say you’re a biologist. If what you’re doing fits within a single systems instead of objects. As the network enables us to discipline, you shouldn’t be here.” He notes that the lab has be more open, we need to collaborate not only with three faculty searches under way, and he says he would love companies and institutions, but with individuals, to find someone in a field that he doesn’t know exists. “We’re engineers and students.” looking for three things: uniqueness, impact and magic,” he Ito is uniquely qualified to lead the lab in this quest says. “If somebody else is doing it, we shouldn’t be. It should because his entire life is like an open-source software hit the world in a meaningful way. And the magic part is project. He famously posted his cellphone number on his important, too; it’s got to be surprising.” blog and has always been happy to speak to anyone whose One of Ito’s first contributions is the creation of the work captures his interest. While Ito professes to have Director’s Fellows Initiative, part of his effort to open the lab no fixed agenda, the common theme among his interests up to the world. “What all the fellows have in common is and investments is always media and media-created that they are passionate leaders in their fields, and that they communities. From blogs to wikis to his passion for the embody the lab’s uniqueness, impact and magic,” Ito says. multiplayer online role-playing game World of Warcraft, “They’re also all passionate about collaborating with the lab. these are all instruments that allow people to communicate

50 Q2.2013 Korn/Ferry and collaborate in new ways and that, in turn, give rise to A sampling of lab endeavors gives a hint of the breadth new kinds of organizations. of its more than 300 research projects, led by 26 faculty and “He’s one of the few people I’ve met, particularly among 140 students. Consider Object-Based Media, led by V. Michael venture capitalists, who really understand social networks Bove, which asks, what happens when self-aware content online, and he understands because he digs in and gets his meets context-aware consumer electronics? Bove’s group hands dirty full time,” says Jimmy Wales, founder and chief makes systems that explore how sensing, understanding and promoter of Wikipedia. new interface technologies can change everyday life, the ways Ito has long been known as self-taught Renaissance in which people communicate with one another, storytelling, man, who attended a few classes at Tufts and later the and entertainment. University of Chicago, but dropped out to work as a club Or take Cynthia Breazeal’s work with personal robots. D.J. and to organize raves, the giant dance parties fueled by Breazeal and her students have developed numerous electronic music and, often, the drug ecstasy. Ito says he is creations, including robotic flower gardens. Other projects driven by a boundless curiosity, a horror of boredom and a include embedding robotic technologies into familiar desire to be where smart people are changing the game. “Just everyday artifacts, like clothing, lamps and desktop about everything I get involved in has a steep learning curve, computers, and creating highly expressive humanoids — has a lot of unknowns, and has risks. It may be a kind of including the well-known social robot, Leonardo. Ongoing addiction and obsession. Just as some people are research includes the development of socially obsessed with money and are willing to do intelligent robot partners that interact with boring things day in and day out to be humans in human-centric terms, work with wealthy, I’m obsessed with always humans as peers and learn from people being in a state of wonder and as apprentices. The ability of these doing things with robot systems to interact, learn cool people. from and effectively cooperate “He says he’s found with people has been evaluated his perfect milieu in the in numerous human-subject Media Lab, where the experiments, both inside sheer breadth and depth the lab and in real- of the research projects world environments. challenge even Ito’s And it’s not all bits and remarkable capacity for bytes either. Tod Machover, self-teaching. While the an avant-garde composer, lab flourishes by being has produced a number of unfocused, Ito says he has contemporary symphonic works to be more focused than ever and an opera of the future, Death before just to keep up. He is and the Powers, which tells the moving his wife, mother-in-law story of a successful and powerful and their four dogs to Boston, and businessman and inventor reaching even thinking about having children. the end of his life and facing the question For the first time in his life, Joi Ito is of his legacy. He is now conducting his final putting down roots. experiment, passing from one form of existence “Right before I joined, I was still flying around the to another in an effort to project himself into the future. world every month,” Ito says. “Partly because I had to stay in Machover asks, is it possible to see sound, or touch sound, America to get my visa, I spent six months in Boston, getting or to have sound touch you so deeply that it can change your to know the lab and the students. Now I’m traveling about mind, your body, your life? And he answers yes. half the time, and 90 percent of that is lab-related, going Nicholas Negraponte is currently on leave from MIT, but to conferences, meeting with partners. I’ve never been so he keeps his hand in, and Ito says they meet often. “The lab is focused in my life, and I still need to spend about half my about reinvention. That’s also one of its core principles, and time right here because the operational stuff is very people- I think it constantly needs to be changing.” Ito says. “In that oriented. I’m much more local than I’ve ever been. For the sense, I’m supposed to be pushing for change. Nicholas and first time in my life I don’t have jet lag all I spend a lot of time together now. And we disagree on half the time.” the things we discuss, pretty vigorously, and we agree deeply The scope of the lab’s research projects has kept Ito on the other half. Even when we disagree, it’s useful, because on the steep part of the learning curve where he thrives. Nicholas is very good at explaining why he feels the way does. “Probably the thing I’m weakest on here is the biology stuff, He is very supportive of me pushing the lab in directions that but it’s also the most interesting,” Ito says. “I couldn’t do it, are slightly uncomfortable. They’d rather be uncomfortable but I can explain a lot of it now, which is kind of my role. I than stagnant.” 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 Lawrence M. Fisher has written for The New York Times, Strategy + there are consistent narratives here.” Business and many other publications. He is based in San Francisco.

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54 Q2.2013 Korn/Ferry Calling On a Steady Hand

Telecom Italia’s Franco Bernabè 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 quar- ters, 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, con- strained 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 Ber- nabè, one of Italy’s most enduringly successful chief executives, to hear his views on how to thrive in these difficult times. IFranco Bernabè has been chief executive of Telecom Ita- lia 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 lever- aged hostile bid for the company. Once the darling of Italy’s fledgling information technology industry but by then fad- ing 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 incon- siderable 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.” Credit

Briefings on Talent & Leadership Q2.2013 55 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.

But Bernabè’s career shift paid off. He started a consultancy an aspiring CEO. He was enjoying the job, but he wanted to and an investment business. Both were successful, and he get closer to the core of the business. So he went to the head eventually sold them to the Rothschild Group. In 2007, Tele- of the human resources department — Fiat had some 350,000 com Italia’s shareholders asked him to come back to run their employees at the time — and asked if he could be transferred by-then-heavily-indebted corporation, and he found himself into line management. ready for the challenge. The H.R. boss told him Fiat had two rules that were rele- But the timing again was not ideal. Within months, Lehman vant to his case. One rule said that if you were good at some- Brothers collapsed and Italy plunged into economic recession. thing in the company, you stayed with it. The other said that For years now, his real challenge has been to find growth when if there were two people competing for promotion and they all around is shrinking. had identical skills, C.V.s and track records, you chose the meaner of the two for the job. In his judgment, Bernabè was Mr. Nice Guy too much of a gentleman to become a line manager. “Forget Bernabè is not a typical business leader. He likes to tell it,” he said. “You’ll never be a manager.” a story about when he was working for Fiat in the early 1980s. Fiat’s loss was to be Eni’s gain. In 1983, Bernabè moved At the time he was chief economist in the sprawling car mak- to become an assistant to the chairman of Italy’s oil-and-gas

er’s planning department, not the normal starting point for giant. Eni was a peculiar animal, more like a government Italia. This page: Associated Press/Luca Bruno Previous page: Courtesy of Telecom

56BQ2.2013 Korn/Ferry Bernabè was in the job for seven years new organization. I will not defend the people in jail.” At this point, Bernabè demonstrated courage, steadfast- ness and an ability to communicate what he wanted to do and what he achieved during that and then (initially to the surprise of many) to do it. He is a great communicator and he is a man of his word. time became the stuff of legend and It helps, of course, to know what needs to be done. Bern- abè spent a long time putting his powers of analysis to work figuring out Eni’s problems until the answer became clear. the subject of a widely read Harvard He had to turn what was a mere adjunct of government into a fully privatized commercial corporation. He started by ask- Business School case study. ing 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 ex- department than a corporation, with interests spread all changes in both Italy and the United States. across the globe. It was riddled with inefficiencies and with At this demanding time, Bernabè discovered an attribute corruption. Its chairman at the time, Franco Reviglio, was a that he believes is particularly valuable for a leader. “A person respected economist who had been one of Bernabè’s profes- who has to make important decisions has to make them alone,” sors at the University of Turin. he told the Harvard Business Review in 1998. “You need an inner After awhile, Bernabè was promoted to head of corporate compass to indicate the way.” He quotes Shimon Peres, presi- planning and development. It was a move that gave him an dent of Israel and a former prime minister, who once told him unrivaled view of the organization’s structure and shortcom- that a person knows he is a leader when he realizes that there ings. It also gave him a unique opportunity to understand what is no one to answer his questions and that he has to answer was required to bring Eni into the corporate mainstream at them for himself. “The more you have responsibility,” Bernabè the close of the 20th century. “I am very analytical,” he said. said, “the more you need to be alone.” “I got to know the organization well, and I developed the ana- When he took over as the head of Eni, Bernabè says, he lytical framework that was needed to do the right things to knew as an economist that there was a better way to run the take the company where it was needed.” organization, a way that would be fairer to a vast majority of Fate introduced an unexpected opportunity. A new gov- Eni’s employees — honest men and women who had the abil- ernment swept into power in 1992 and Reviglio, Bernabè’s ity to transform the organization but whose lives were un- mentor, became a minister in the Cabinet. The life of late 20th dermined by a minority who swayed with the political winds century Italian governments was measured in days, not years, and lined their pockets at every opportunity. He wanted to and this one survived for only 298. But that was long enough show that the business could be run ethically and profitably. for Bernabè to be appointed chief executive of Eni. He was 43 His method was to take Eni out of the hands of government years old and very junior. “People thought it was a joke,” he and put it in the hands of the market. said. “I was completely outside every political circle. They gave It was the correct decision, but it was not a popular one. me six months to survive.” He did much more than survive. While Margaret Thatcher’s Britain had by then wholeheart- He thrived. edly embraced privatization, sloughing off huge chunks of Bernabè was in the job for seven years and what he achieved its state machine onto the market, Italy was not yet so enthu- during that time became the stuff of legend and the subject of siastic. Bernabè had to fend off frequent calls for his resigna- a widely read Harvard Business School case study. It started in tion from Socialist politicians before Eni first offered stock spectacular fashion: A few months after he took over, 20 of the to the public in November 1995. company’s top executives were arrested and thrown into jail A different style of life on corruption charges. A few months later, Gabriele Cagliari, who had been chairman of the company from 1989 to 1993, Despite having spent almost 20 years as a CEO, Bernabè committed suicide in prison. still has an owlish academic manner, not surprising perhaps It was a challenging time, a vital moment in Bernabè’s in someone who for a couple of years early in his career was development. After the arrests, he had to give two speeches a senior economist with the Organisation for Economic Co- — one in Rome and one in Milan — to Eni’s employees, thou- operation and Development in Paris. He is analytical and un- sands of people, most of them hoping to hear that the judges flappable, a million miles from such flamboyant Italian busi- who had carried out the arrests were wrong and that their or- Dnessmen as Gianni Agnelli and Silvio Berlusconi. ganization was right. But Bernabè said just the opposite. “We Bernabè may be a strong leader, but he is also a modest need to do things differently,” he said. “We need to create a man — modest about his own achievements and modest in

Briefings on Talent & Leadership Q2.2013 57 his lifestyle. He admits to being married and having two chil- hand on the rudder, and that’s what is needed. When he was dren, but his family is never seen in public. And for good rea- invited back to Telecom Italia in 2007, he told the board not son. He himself has been the target of threats in the past. to expect fireworks. He has been true to his word. His upbringing was modest too. He was born in the village What excitement there is — the company’s main hope for of Sterzing, near the town of Vipiteno in the southern Tyrol. growth — lies in Latin America. Telecom Italia owns 67 per- Vipiteno is a stop beside a main road and a railway line that cent of TIM Brasil, the second-biggest mobile operator in a wind their way up the Brenner Pass to Innsbruck and the country that is to host the World Cup in 2014 and the Olym- German-speaking world beyond. His father worked on the pics two years after that. And it has a 22.7 percent economic railways there. Pine trees and Alpine snow provided the back- interest in Telecom Argentina, that country’s leading fixed- drop to his childhood, not olive trees and the Mediterranean. line operator. Recent results from these operations have been It makes for a particular type of Italian. exceptionally good. Whereas in the first nine months of 2012 “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 Bernabè left Eni because he felt he had 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, become slow to change. “I came to a point the Museo d’Arte Moderna e Contemporanea in Trento and Rovereto, about 90 miles south of his birthplace. One of the where I was wanting to hear the same 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 things from the same people,” he said. It interest. “I could profit from my position,” he said. His modesty is not without its own rewards. “I could go had all become habitual, and he is the first 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 to acknowledge that this is dangerous. business, he has always understood there were risks. 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 Amer- ican 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 Hcost 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 stream- lining 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

58 Q2.2013 domestic revenues and earnings both fell from a year earlier, Skype has done for voice calls, and in the process grew more in Brazil they grew by 11 percent and 9 percent respectively, than fivefold in 2012 alone). and in Argentina by 20 percent and 8 percent. These “disruptive innovators,” to use the terminology of But there are potential obstacles to further growth in the Harvard Business School professor Clayton Christensen, these markets. In the first place, despite their cooperation at who first described their power to overturn an industry in his home, Telefonica and Telecom Italia compete fiercely for busi- book “The Innovator’s Dilemma,” have been much on Bernabè’s ness in Latin America. TIM Brasil’s closest competitor is Vivo, mind of late. He talks of the “parasitical” way in which they which is owned by Telefonica. Bernabè says there are Chinese ride on the back of networks maintained by traditional com- walls between the companies’ European and Latin American panies like Telecom Italia. When storms bring lines down, operations. Nevertheless, regulators in Argentina and Brazil somebody has to mend them. Bernabè has 25,000 people on watch keenly to see that there are no restrictive practices. Ag- the job; Skype has no one. “Skype is using our network,” Ber- gressive moves by regulators in recent months have raised the nabè said, “and not paying for it.” specter in both markets of further government intervention. At the heart of the problem lies the 1988 agreement of In the longer term, though, Bernabè believes that his com- the International Telecommunication Union, based in Ge- pany’s growth depends on reseeding the very turf on which neva, spelling out the first international telecommunication the telecommunications game is currently played. Telecom- regulations. Much attention was paid at the time to the trad- munications, he says, used to be a business where services ing of international voice traffic, but very little to data traffic, and infrastructure went together. But technological develop- which was then virtually nonexistent. Now the reality is very ment has led to a dramatic separation of the two, and this has different, but the international regulations are not. A new allowed a host of new rivals to enter the business — rivals like I.T.U. conference on the subject of data traffic (the first since

EPA/Daniel Dal Zennaro EPA/Daniel Skype and WhatsApp (which has done for messaging what 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 self- aware 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.

Q2.2013 59 CORPORATE

GOVERIndependent and informed directors can help a company deliver NANCE superior shareholder value in this fast-changing digital era. Building Boards That Perform 1. by robert e. hallagan and dennis carey hen the concept of independent boards was devel- The key elements in our framework are based on common oped, it was envisioned that boards would not just sense, nothing revolutionary. Though the standards are sim- Wprotect shareholder interests but also become a ple in concept, even a potentially high-performing board can strategic asset and source of continuous competitive advan- become derailed if it fails to pay consistent attention to the tage for their companies. details. It is the role of the governance committee and board As the years progressed, however, some boards fell short, leader to ensure a relentless focus on all elements. failing to add or even damaging shareholder value. Other The Right People boards performed admirably as fiduciaries and monitors of performance, but little more. And then there is the gold stan- What competencies, diversity of thinking styles and interper- dard: elite, high-performing boards that do much more than sonal skills go into making a board that stands out as a top mundane corporate caretaking. performer? Companies’ strategies change and so must the The National Association of Corporate Directors Blue Rib- talent on the board. Our approach is rigorous and similar to bon Commission on Board Evaluations and Board Effective- starting a search for a new CEO. The starting point is the stra- ness, co-chaired by Ken West and Robert E. Hallagan, addressed tegic plan. What will drive shareholder value? What does this in 2012. The commission decided early that boards could the company have to do extraordinarily well? What are the not be evaluated in a vacuum, seeing a need for a framework toughest challenges to execute, and what are the biggest and for high-performance boards to benchmark. most complex decisions? From this analysis we can project That framework includes inner and outer circles. It starts what the board agenda will be, how a board will add value, and, at the core with the board’s commitment “to be a valued asset more specifically, the skills that will add the highest value on of the company, measured by the contribution we make — a continuous basis. collectively and individually — to enhance shareholder value,” Two examples of boards we have built recently illustrate and ends in the outer circle — a company that is maximizing this point: long-term shareholder value. Delphi — After four agonizing years, Delphi came out of Every activity within the circles must contribute to orga- bankruptcy with new owners: two highly successful hedge nizing a board in a manner that ensures maximum shareholder funds — Elliott and Silverpoint — and General Motors. They value. It also clearly establishes the premise that if a company is were excited about building a “best in class” industrial prod- a chronic underachiever, the board must be held accountable. ucts business and wanted a board to bring this perspective to

60 Q2.2013 Korn/Ferry GOVERIndependent and informed directors can help a company deliver NANCE superior shareholder value in this fast-changing digital era.

the company in a respectful manner. Once we convinced Jack tions: Who would fit best in the team dynamics and who had Krol, the former CEO of DuPont and chairman of Tyco, to serve the time and enthusiasm to become fully engaged? We wanted as non-executive chairman, we continued around the table no “body fat” — everyone should be pulling their oar with the with executives bringing an extraordinarily diverse set of skills. same intensity. Now one year later, the stakeholders benefit All met three critical requirements: from this high-performing board. • a markedly successful history of making good decisions, Most boards obviously do not have a fresh start like Del- • interpersonal skills that thrive in a team environment to phi and Lehman, but each board should have a succession maximize group dynamics, plan that calls for constantly examining future challenges • time to be fully engaged and enthusiastic about Delphi. The board has four successful CEOs from companies that r m i n g o r specialize in industrial products; world-class technology and f o g a n e r i z human resources executives skilled at innovation and talent - p a h t i management; a highly respected industrial products CFO, i g o H n and a former Goldman banker, as well as executives from Eu- Right rope and Asia. Delphi is clearly on a path to bolster share- People holder value, and we can proudly give a long list of value- added contributions by the board. Right Right Lehman Brothers Holdings — Another powerful ex- culture the board’s issues ample is Lehman Brothers, the largest bankruptcy in commitment: To be a valued asset of history and a black eye for the financial community. As the company measured a requirement to emerge from bankruptcy, courts or- by the contribution we dered the holding company to appoint seven new direc- make — collectively tors to oversee the liquidation of Lehman assets. A com- and individually — to enhance long-term mittee of stakeholders from around the world was Right shareholder value. Right formed to select the seven. This large and diverse search struc- infor- ture mation committee had to spell out a list of skills that could maximize the $70 billion of assets that would be used to pay Right creditors. Before candidates were reviewed, the exact role of process the board was debated and the complexity of the task fully vet- s u e ted by stakeholders. After more than 25 candidates presented p u e r a l their backgrounds, the committee projected how each could i v o r e r add value and complement others on the board. Next ques- s h a r e h o l d

Briefings on Talent & Leadership Q2.2013 61 It’s the Right People: N.A.C.D. Panel Concludes

Robert Hallagan of Korn/Ferry Interna- tional 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 Auto- motive and director of Tyco International; Owen Thomas, chairman of Lehman Broth- ers 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 sen- tence for ex-CEO Dennis Kozlowski, is the former chairman and CEO of DuPont. He was called upon more recently to help Del- Left to right: Robert E. Hallagan, John A. Krol, Owen D. Thomas and Curtis J. Crawford. phi Automotive emerge from bankruptcy. hat distinguishes a high-per- Their conclusion: Boards that are com- “After you recruit the right people for forming corporate board of di- mitted to self-evaluation, which expect the board, you need to tell them what a high- W rectors from the also-rans? A 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. ing forward: Make the commitment to be

out to answer that question. With 800 directors in the audience, a high-performance board by focusing on Morse Paul

and identifying talent gaps. Chemistry and collaboration are what drives shareholder value: sophisticated and prudent risk- two of the most important drivers of a high-performing board. taking and outsmarting the competition. Attracting the right talent for the board is difficult. Companies The Right Information must be clear about what will add value and apply the same discipline in succession planning that they demand for the Unfortunately for shareholders, many companies have con- company’s leadership team. “We could not attract the right sistently been low performers. Is it possible that their board talent, so we settled for” — is a statement not made by high- members want to do a good job, but are not getting adequate performing boards. Once the exact talent is identified, they information? Korn/Ferry researchers are trying to understand are likely to wait one — sometimes two years — before the how information barriers affect a board’s performance. right director becomes available High-performing boards demand more than financial numbers, using a balanced scorecard approach that includes Right Issues critical elements such as product and service quality, customer Highly motivated talent must not be wasted. Imagine assem- trends, talent, competition, innovation, total enterprise risk, bling these all-star Delphi and Lehman boards and then hav- ethics and corporate culture. The right information supports ing board meetings consist just of management presentations focusing on the right issues. or random topics. Sarbanes-Oxley and now Dodd-Frank have At the annual conference, N.A.C.D. President and CEO Ken unfortunately made many boards averse to risk, spending too Daly raised the issue of asymmetrical information, noting much time on compliance issues. that boards may get incomplete or incorrect guidance from It is the responsibility of the board leader working closely company executives. Directors relying solely on manage- with the CEO to be sure the agenda is rich in content — with ment’s word may not have the full details to make wise and a majority of time dedicated to topics most closely aligned to informed decisions. In various case studies of troubled com-

62 Q2.2013 Korn/Ferry • the right people, director’s expertise to work through these logue is too important and strategy today • the right culture, assets.” is too demanding for directors not to have • the right information, Curtis Crawford was a member of the a keen understanding of the company.” • the right issues, ITT board when the conglomerate decided “The chemistry between the CEO and • the right process, to split into three companies. “We named chairman and lead director has to be good,” • and the follow-through. three new CEOs, all promoted from within. Krol said. Both need a shared commitment Krol cautioned against relying only on We had an inventory of talent to draw from. to high performance. “If there is not agree- the director candidates’ paper credentials. Working closely with our recruiting firm, ment on that commitment, there is very lit- “Pay close attention to their record of ac- we recruited approximately 15 new direc- tle progress that can be made.” complishments and how they work with tors for the new boards, drawing on a half- Thomas says the Lehman Holdings others. Talk to them. Get to know them. Will dozen former board members for ITT.” board takes pains to use its talent wisely. he or she be a team player? ” Crawford said 30 percent of the new “We have a six-month window to do our Owen Thomas became chairman of boards are minorities or women, and 10 work. You can be sure that we quickly iden- Lehman Brothers Holdings in December percent live, or have lived extensively, tified what each of us should be doing. 2011, after heading Morgan Stanley’s outside of the U.S. We meet weekly. We keep the agenda tight, Asian and real estate divisions. Thomas “Lessons learned for us were, ‘Work picking the right issues. We can’t waste and the other six board members are work- closely with your recruiter. Identify the anyone’s time.” ing to close the books on the largest corpo- critical characteristics of the board mem- Before joining the Lehman Holdings rate bankruptcy in history. Part of that task bers for each board and make them non- board, none of the directors knew one is to return some portion of Lehman’s $70 negotiable. Don’t look in the same old another. Hallagan asked how they came billion in illiquid assets to claimants who places for talent,’ ” said Crawford. together to form a strong work group. are owed $350 billion. “Had we limited our search to the peo- “It’s the little things you do,” said Thomas. “Of our seven-member board, only two ple we know, we would have missed out on “We’ve gotten to know each other as people. have full-time jobs,” Thomas said. He and some amazing talent,” Crawford said. “You We had an outing with our wives. And the his fellow board members have extensive have to commit to spend quality time with seven board members have dinner together experience in the types of assets that Leh your recruiter to zero in on opportunities.” once a month without any program.” man owned, Thomas’ expertise being in real Hallagan emphasized that once the tal- Curtis says the process requires much estate. “We are an engaged group of direc- ent is in place, high-performing boards take more of the directors than merely touring tors. We have a finite mission. We’re not in it to the next level. “You’ve got to help di- a worksite together. “All of us consider our- business in perpetuity. We are using each rectors learn the company. The board dia- selves new.”

panies, CEOs have been found to have withheld information directors, it’s important to understand the company’s strategy, from their boards. its competitive position and the environment in which it Given their responsibility for oversight, directors need to operates. acknowledge that asymmetric information is inherent in the The Right Process boardroom and create a process to identify when that risk has become too high. Directors must ask themselves if they are As we continue to move through the framework, the heavy getting the information they need to make decisions. If not, lifting is done, but flaws in the board’s process, structure and do they ask for additional information and receive it? As one culture can still hobble performance. director told us, like Ronald Reagan, we need to “trust but Important process considerations include: verify.” On occasion boards will need to seek outside informa- • Continuous clarification of the board’s role versus that of tion or analysis. The best boards use this privilege judiciously. management — Directors must know where the boundary At the same time, directors cannot go overboard. Provid- lies and understand that the line sometimes shifts in crises. ing additional information eats into managers’ schedules. • Decision-making authority —Too little authority may render CEOs can become concerned that supplying more informa- the board ineffective, and misunderstandings can cause un- tion may be blurring the line between management and over- necessary friction with management. sight. “Nose in, fingers out ,” meaning it’s O.K. to be inquisi- • CEO/board relationship — What is being done to ensure this tive, but it’s not O.K. to run the business, is a good reminder is a trusted, respectful and open relationship? Is a thought- for board members. ful process for evaluating, mentoring and developing CEOs Directors recognize the information-rich world in which in place? they operate. Each year it becomes more challenging to ob- • Meetings — Are the right items on the agenda, in the right tain, study and understand relevant information . As we tell order, with quality time allocated for discussion? Is the

Briefings on Talent & Leadership Q2.2013 63 quality of time for hearing presentations low compared to Committees — We believe committees are an important active discussion? part of the board structure. Since 2003, the Sarbanes-Oxley Act • Executive sessions — Are closed-door meetings used effec- brought about the requirement for independent audit, com- tively? Do they include feedback to the leadership team? pensation and governance committees. We suggest, however, • Board succession planning — High-performance boards are that the effectiveness of each committee needs to be evaluated. constantly planning for succession of leadership talent. All boards have audit committees, yet we have seen numerous midcap companies assign the compensation and governance The Right Structure committee responsibilities to the full board, which has re- If you had the luxury of building a new board from scratch, sulted in enhanced efficiency and information flow. what structural components would you consider to optimize Compensation — We want a board that is highly moti- group dynamics, decision making and performance? vated to ensure a company is on the path to maximize long- Size — As a general observation engagement, accountabil- term shareholder value. Ideally, we want this board to be an ity and decision making are best in a small board environment. important part of each director’s activities, not forgotten be- This necessitates no room for “extras” and that each board tween meetings. If we expect this level of engagement by suc- member has skills and competencies that can add value in cessful executives — who have choices — compensation must multiple areas. be motivating and aligned to performance. Terms, Age Caps, Term-Limits — There are always excep- Right Culture tions and each board must leave room for flexibility, but there is also strong evidence that continuously refreshing a board As we complete the framework, we arrive at the glue or “en- with new “high-performance” thinkers is a “best practice.” ergy drink” that allows highly skilled executives to thrive and Long-term continuity and institutional knowledge are pre- work efficiently as a team. It is a culture of trust and openness, cious, but it is also worthwhile to debate whether, for exam- all egos in check and all opinions heard and respected. Critical ple, the second 10 years a board member serves are as valu- issues are surfaced, thoughtful debate and disagreement is able for shareholders as the first 10 years. common and decisions are enhanced — the leadership team Board Leadership — Commitment to strong, engaged, is excited by the energy at board meetings and motivated by independent leadership is a requirement for high-perform- their debate and encouragement. Skills and competencies on ing boards whether it takes the form of a non-executive chair- the board are continuously aligned to the future challenges of man or lead director. Equally important is clear definition of the company, and there is no entitlement mentality. All board the role and selection of the right leader. Some board mem- members take their responsibility to shareholders seriously bers do not make good board leaders. Knowing this and estab- and feel they must “earn the right” to be reelected. lishing a thoughtful process to ensure the board has strong As role models for the company’s leadership team, they choices is important. We have seen numerous times when are in a constant mode of self-examination and continuous boards were not prepared for leadership succession, and pick- improvement and want rigorous board evaluations done on ing the wrong leader has created serious problems. a regular basis. They strive to be a “best in class” board and want to stand tall directly in front of shareholders. r m i n g o r All this is common sense. But having observed hundreds f o g a n e r i z - p a of boards we know only a small percentage are truly high per- h t i i g o forming and a continuous source of competitive advantage; H n Right many boards are doing a majority of things right, but few are People “hitting on all cylinders” all the time. It is hard work that demands focus, commitment and enlightened leadership. It is Right Right a journey as much as a destination. N.A.C.D., the world’s pre- culture the board’s issues commitment: mier education organization for directors, and Korn/Ferry To be a valued asset of the company measured are dedicated to continue our work on high-performing boards by the contribution we and are delighted by our clients’ commitment, pride and in- make — collectively tense desire to improve. The art and science of building a high- and individually — to enhance long-term performing board is evolving. We are learning from each Right shareholder value. Right struc- infor- other and look forward to our engaged conversations. ture mation

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

s and CEO services of Korn/Ferry International. u e p u e r a l i v o r e r s h a r e h o l d 64 Q2.2013 Korn/Ferry Corporate Governance 2.0: The Boardroom Collides with the Digital Age 2. by mina gouran apid advancements in technology continue to alter the foundations of business, redefining customer re- Rlationships, 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. Tech- nology 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. While the board is not responsible for putting mecha- What is clear is that the rules of consumer engagement have nisms into place to address these issues — that is the role of been radically altered. To forge closer connections with cus- the executive team — they are responsible for taking a strate- tomers, partners, stakeholders and employees, companies gic view of how technology trends will shape their company’s will need to remain highly agile, adapt quickly and ensure future. Boards must understand that business strategies are they are using technology to the best possible advantage. It now inextricably linked with digital strategies. They must stands to reason that a board’s core skills will need to mirror be able to evaluate current trends while anticipating future this change. innovations. A cursory look at the numbers demonstrates the extent Are boards capable of fulfilling this task? Can the average to which digital trends are now a global phenomenon. More board accurately assess the nuances of the digitization phe- than 200 million iPhone and Android smartphones now nomenon? Is it time to inject “generation Y behaviors” into are in consumers’ hands, and demand shows no sign of slow- our boardrooms to understand the vast disruptions and op- ing. Some 41 million software applications are downloaded portunities associated with digitization? All companies must every day, and social networking has expanded exponentially. now ask: How can their boards get up to speed — quickly — While these trends are not altogether new — but rather the about these new technologies? culmination of over 50 years of disruptive technology — they Future-proofing the boardroom have dramatically affected distribution channels, altered business models and placed the power firmly in the hands It’s not surprising that many chairmen and senior executives

Christopher Sickels of the consumer. think boards should play a more active role in discussing

Briefings on Talent & Leadership Q2.2013 65 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 cen- trality of this knowledge, recruiting former Mi- crosoft 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 Face- book, while Starbucks added the 29-year- old 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 digital strategy. Many see an urgent need to infuse digitally Risks Before They Go Viral” — suggests that this information knowledgeable talent into the boardroom. With the average should now supplement traditional key performance indica- age of directors in S&P 500 companies at an all-time high — tors that directors use to evaluate senior management. up from 60.2 in 2001 to 62.4 in 2011 — there is a danger that The paper points to how Procter & Gamble developed a older directors might be out of touch with issues surround- digital “dashboard” that uses Bayesian analysis to scan tweets, ing new markets emerging from the digital age. blog posts and other social media. This information is then Many companies are acting fast to address this digital used to summarize consumer sentiment and measure brand capabilities gap at the highest levels. In those sectors where strength. P&G Chairman and CEO Robert McDonald report- digital technology matters most — either because it’s the core edly uses the dashboard to review corporate brands. This of the business or because it’s disrupting the core — digital combined use of social media and real-time data analytics is boards are now the status quo. Technology companies such just one example of how digital technology is influencing a as Amazon, Dell, Hewlett-Packard, Google, I.B.M., Apple, Cisco, modern company’s decision making. Intel, Microsoft and Oracle predictably have boards dominated One size does not fit all by directors with digital expertise. A shift is also palpable in sectors such as hospitality, con- The challenge for most boards is that “digital talent” is an sumer goods, retail, distribution and supply chain. A quick ambiguous term, encompassing a vast array of domains. look at the boards of Pepsi, Sysco, Ingram Micro and FedEx Social media, e-commerce, mobile advertising and online reveals how these companies have jumped in with both feet publishing are just some of the segments, each possessing to recalibrate the composition of their boards. highly heterogeneous talent with divergent skills and com Many have recruited digital CEOs to their boards — the petencies. How do boards choose the right digital talent? Holy Grail being those who possess both digital expertise and The talent requirements will vary greatly across indus- C-suite status. Coca-Cola recruited Bobby Kotick, the CEO of tries. There is a danger of companies reacting hastily without the world’s largest video game publisher, Activision Blizzard, considering what experience and skills are needed. By assum-

while the New York Times appointed Joichi Ito, an entrepre- ing all “digital talent” is created equal, boards could misun- Christopher Sickels

66 Q2.2013 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 with- The 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 fa- Corporate 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 ex- terms 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 oppor- board that initially recognizes the need to diversify their tunities of a digital age, boards need to have sufficiently var- product 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 diver- technologies — the board must be able to assess it. sity. Their true value, however, comes from the un- Given that innovation and disruption in- deniable fact that this demographic grew up creasingly drive senior executives’ growth in the digital age. They therefore intui- agenda, boards with the ability to moni- In the search tively understand the new economic tor these decisions could prove to be landscape. After all, e-commerce is the crucial difference between com- for digital talent, it barely 20 years old. These “digital panies that create superior share- natives” — who have lived and holder value and those that don’t. may be necessary to breathed the new economy most To debate, test and approve new recalibrate the established of their professional lives — may digital strategies, boards need be two or three decades younger members with the aptitude to help benchmarks of what than a typical board member. They frame the discussion. an ideal director are nonetheless causing ripples in the business world. Short supply — High demand looks like. Examples include Mark Zucker- The challenge for boards is to find can- berg (age 28) of Facebook; Ben Silber- didates with technology acumen alongside mann (30) of Pinterest; Jack Dorsey (35) the conventional behavioral traits associated of Twitter; David Karp (26) of Tumblr; Jeremy with a director role. Ideally, candidates require digital Stoppelman (34) of Yelp; Daniel Ek (29) of Spotify; Salar knowledge layered on top of broad operational experience Kamangar (35) of YouTube and Google; Dennis Crowley (36) and a successful executive career. The best directors will be of Foursquare; Andrew Mason (31) of Groupon; Sal Khan (35) familiar with technology disruption and innovation but also of Khan Academy and Alison Pincus (37), co-founder of One possess wisdom, maturity and perspective. Kings Lane. This talent pool is in critically short supply. While the Appointing “digital natives” to the board, however, raises changing of the generational guard will mean this shortage the tricky issue of ageism. As companies grow more risk- will dissipate over time, boards still face the immediate averse in the current slow economic climate, they want ex- challenge of ensuring growth and success through the perienced hands at the board level to deal with short-term transition. risks and challenges, rather than adopting a more long-term Recruiting directors from the technology, digital and e- approach. commerce industries could therefore mean hiring candidates In this context, how do companies integrate younger, with unconventional backgrounds. Many individuals with fresh digital talent into their boards? Is it an acceptable trade digital expertise have not achieved the same stature as tradi- off to have talent who will push the boundaries but who may tional candidates, and for most it will be their first board ap- lack the maturity needed to function effectively at board pointment. In the search for digital talent, it may be neces- level? How will younger, less-experienced directors mesh sary to rethink what an ideal director looks like. with seasoned directors in the boardroom? Will there be Atypical candidates with experience in industries that enough mutual respect and understanding to have effective

Briefings on Talent & Leadership Q2.2013 67 boardroom conversations? that technology is not a stand-alone issue, but an integral part Often the biggest challenge is bridging a substantial gen- of successfully running a company. Since the introduction of eration gap. Experienced directors can be skeptical of unusu- regulation 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. Chair- board requires tremendous skill and sensitivity men could also consider “technology immer- from the chairman. sion” sessions, similar to standard risk or Indeed, the chairman is instrumental Boards accounting training. There could come in ensuring that each director fulfills must seek out digital a time when technology-focused 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? members increases. Less-experienced anticipate innovation directors need subtle coaching, not and seek out the Governance in the digital age will only during the on-boarding process likely be a process of trial and error. but on a continual basis. “signal” among the Some firms will get it right; others will not. There is no manual for the The bigger picture “noise. future and no guarantee of a successful Recruiting digital talent at board level is cer- strategy. What is certain is that the contri- tainly expedient in improving governance amid ac- butions, value and objectivity that directors bring celerating technological change. However, it is also wise to to the board are what count. Non-executive directors need to step back and understand that change is not new. The pace of be assessed based on results, leadership and their delivery of current change is unprecedented, granted, but radical change shareholder value, none of which has any direct relation to itself is perennial. age, gender or ethnicity. Technological innovation has been disrupting businesses We also know that a range of reinforcing strategies will for decades. While trends such as social media and smart- ultimately encourage more frequent, focused and informed phone penetration are certainly unique, it is not the first time digital discussions at board level. Adding talent with a deep companies have adapted to game-changing innovations. The understanding of the digital landscape will be vital. Simulta- tenets of corporate governance remain largely the same. neously, encouraging veteran directors to get smart about “Digital transformation” is about a delicate changeover be- technology will help augment long-term success. Together, tween the old and the new, a shift that involves managing risks, these approaches will create an environment where firms re- identifying opportunities and setting strategic goals. This is main flexible enough to recognize important technological not a unique governance challenge: It has always been — and developments and incorporate them into business models. will remain — the raison d’être of any board. It is the duty of The advent of the digital age reinforces the importance of the board to see beyond the details of today and help frame the ensuring true diversity at board level, reflecting the markets, issues for the CEO in a holistic and forward-thinking fashion. global locations and customer demographics in which a busi- There is a tendency to overestimate change in the short ness operates. This is true regardless of what technology lies term and underestimate it in the long term. “Miracles of com- around the corner or what new trends reshape customer be- munication” such as the Telex and fax are as redundant today havior. Boards must be prepared for constant recalibration as the telegraph before them. In the same way, current tech- in order to lead in this ever-changing world. nology 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 innova- London 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 namics: ‘As activity lessens, order • Building self-awareness and Don’t Just increases.’ ” clarity of purpose In his new book “The Pause Prin- • Exploring new ideas Do Something, ciple: Step Back to Lead Forward” • Risking experimentation Cashman suggests that savvy, suc- • Questioning, listening, and Sit There cessful leaders are willing to em- synthesizing brace a concept that seems anathema • Challenging the status quo, within in organizational settings today: tak- and around us. ing a specific and powerful moment Though it may smack of New to stop, reflect, consider and deliber- Age folderol, the idea of CEOs and ate before taking action. other organizational leaders pausing “The Pause Principle is the con- through meditation, daily runs, yoga, scious, intentional process of step- retreats and any number of other ping back, within ourselves and out- effective means to reconsider the side of ourselves, to lead forward consequences and direction of their with greater authenticity, purpose actions is actually catching on. Cash- and contribution,” Cashman writes. man, a leadership consultant and Sleep, the ultimate example of practitioner himself, recalls a trip pause, is a natural, transformative he made with his wife to visit the process which scientific research ex- Dalai Lama and sacred sites in India. tols as vital but severely lacking in Frantically focused on getting the our current whirlwind professional manuscript for this book completed, environment. “What sleep is to the Cashman wrestled with the idea of mind and body, pause is to leader forgoing the trip. But convinced of e live in a VUCA world (an Army ship and innovation,” Cashman its value, the couple embarked on War College acronym that stands writes. Much has been written about the journey, only to be felled by ill- for Volatile, Unpredictable, Com- the difficulties leaders encounter try- ness when they reached Delhi. This plex and Ambiguous) and leaders ing to operate in the pressure-packed “forced” pause caused Cashman to ac- are under more pressure than ever 24-hour global marketplace. Quot- knowledge that “life had other plans; Wto find a successful route through ing Nobel Prize-winning psycholo- life wanted us to slow down...to stop.” this daunting environment. There is gist Daniel Kahneman, from his lat- Instead of being discouraged by no shortage of leadership literature est bestseller “Thinking, Fast and missing the Dalai Lama, Cashman aimed at prescribing actions leaders Slow,” Cashman echoes Kahneman’s experienced a week of some of the can take to successfully meet the admonition that fast thinking can most creative and prolific writing of VUCA challenge. But now comes a lead to limited options in high-stress his career. Pausing, forced or volun- new book from Kevin Cashman that situations, forcing leaders to rely on tary, created the space and time to suggests a slightly radical approach: opinions and impressions that make embrace what mattered most. No action. Rather, pause. them blind to what they don’t know. The book is divided into three Cashman, a senior partner at In this slim volume (132 pages), parts: growing personal leadership, Korn/Ferry International and author Cashman takes what might seem growing others, and growing cul- of “Leadership From the Inside Out,” like a one-note tune, and builds a tures of innovation, all by embrac- defines pause as “a universal princi- convincing case, through examples ing the pause principle. The main ple inherent in living, creative sys- and insight, into the value and re- strength of Cashman’s volume is the tems. It is part of the order, value wards of pause. He starts out by sug- use of timely examples to illustrate and growth that arises from slowing gesting a list of five Pause Points that his point: show rather than tell. down and stepping back. In physics, provide a way to instill “a consistent, James, a successful CEO of a multi it is the Second Law of Thermody- intentional manner for reflection by: billion-dollar global manufacturing

70 Q2.2013 Korn/Ferry organization, seemed to have it all. please keep it up,” she implored him. ment and production. By pausing to He was strategic and innovative. But The Pause Principle is also cru- create a culture of innovation, Pax- he found that the more he pushed cial to creating cultures of innova- ton set his company on a dynamic his people, the less responsive they tion, Cashman asserts. He describes path to success. became. They had come to realize Mike Paxton, former CEO of Häagen- Following the long-held credo that James liked to do it all himself. Dazs and currently CEO of Chamilia, that business books must provide He preached innovation and collabo- a fast-growing jewelry company. Monday morning takeaways, Cash- ration but his behavior said other- Paxton is one of those talented lead- man concludes each chapter with wise. With some executive coaching, ers who reflexively foster a culture a set of exercises for readers to use James began to realize what was of innovation by pushing their peo- to build the concept of pause into happening and what his role was in ple to find new and better ways to their workplaces and personal lives. the process. He saw the incongru- get things done. Simple though the concept may be, ence of his behavior and addressed In building Chamilia, Paxton the reality of embracing Cashman’s it. “To his credit, James became the paused to consider how to convey ideas faces intense resistance. But in change he wanted to see in his orga- to the organization that continuous the long run, there is no escaping the nization,” Cashman writes. “James innovation was the key to global day of reckoning. paused, and learned to become more growth and success. “This is a fast- “Pause is an inherent, generative self-aware through self-reflection, growing, successful company with principle that is always there, always which began to unlock his potential, highly energized teams with tre- available to us,” Cashman concludes. and many of the doorways of his team mendous creative design success,” “Either we consciously go to it, inte- flew open as well.” Paxton said. “I had to step back to grating it in our lives or it comes Beyond pausing to inspire per- think about how I could inspire to rescue us. Think about the many sonal growth, effective leaders must them to push the envelope, set inno- times you’ve felt the tug of pause.... find a way to grow others in the or- vation as the goal not just in design your intuition telling you to take a ganization. Cashman recounts work but in all areas.” Paxton challenged break, or to take another approach... with a CEO who was quite bellicose his team to become the leader in in- and how many times you’ve ignored in self-praise but failed to see how novation every year, and not just in it until finally you could ignore it his attitude stifled growth in others design but in supply chain manage- no longer.” 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 NOT A LAUGHING MATTER open to dominating discussions. He An analysis of speech patterns in business meetings was openly critical. However, he was reveals the majority of male humor (80%) takes the closed to his impact on others,” Cash- form of flippant, off-the-cuff witticisms or banter. man writes. About 90% of it receives an instant, positive response, Working with him over several usually as laughter. Yet most female humor during the course of a meeting is self- months, Cashman was able to get the deprecatory (70%) and more often than executive to pause and learn how to not (at least 80%) is received in silence. be more receptive, listen more, in- Perhaps because of the poor reception terfere less. When he realized the accorded to women who used humor, power of such behavior, he learned men are three times more likely to to pause on his own to give others use jokes to lighten the mood in a chance to work out solutions to meetings they are leading. problems and to express their own Source: The Observer ideas. Even the man’s spouse saw the transformation and called Cash-

Hal Mayforth man. “Whatever you are doing,

Briefings on Talent & Leadership 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- ing stack of paper in your office, basement or garage. For me, it’s because of history.

For example, I have some Fortune magazines from the 1930s work. He was sure right about that. in one of those stacks. One of them, from 1938, is about new I bring this up because we sometimes think, erroneously sources of energy, including alternative energy, which would it turns out, that the period of time in which we live is unique. be available in the United States after the oil runs out. Texas That our problems could never have been encountered before, was the Saudi Arabia of the pre-World War II era. and that the solutions we propose, to spending, say, are new. Except for its retro style, the article, photographs, illustra- And yet, just the opposite is true. Since the beginning of time, tions and charts could have been published today. It lists nat- people have wrestled with recession, depression, debt crises, ural gas, ethanol, hydropower, wave power, geothermal energy unemployment, political bickering, shortages and collapsing and shale oil as new sources of energy and fuel. They’re the levels of confidence. alternatives we are discussing now. It turns out, according to one of my old National Geographic The magazine has pictures showing how each solution magazines, that 6,000 years ago, when the Sumerians wan- works. Photographs show cars running on natural gas, while dered onto the scene in present-day Iraq and invented civiliza- others show scientists generating electricity from the sun. tion, their in-baskets contained the same long list of problems The only source of energy the article missed was nuclear. to solve as ours. Except their lists were written on clay. Maybe in the far-off future, the authors write. Well, maybe. Back then, they had to concoct ways to bail out city- Another Fortune article, written in the midst of the states that piled up too much debt, they had to Great Depression, wonders whether factory automa- play with interest rates to spur growth and tion will destroy jobs. Another one, from the same pay for infrastructure improvements, and they period, shows the astonishing speed and efficiency had to raise and lower taxes on the wealthy, with which the now-defunct New York department which were paid with grain. They had to do store, Gimbels, receives orders and drops products all this while preserving the value of the tal- into the mail. If it weren’t for those old-fashioned ent and shekel. They did all this to create pneumatic tubes, pulleys — and men in double- wealth and preserve jobs. breasted suits — you might think you were looking at What I’m saying, and what my musty pile black-and-white photos taken at the Zappos divi- of magazines proves, is that we’ve seen all sion of Amazon. this bad political behavior before. Way be- Another article contains a first-person fore. According to my magazines, after account of a journalist’s visit to Russia to everything is resolved, we’ll probably see what he calls the “Soviet experiment.” see it all again. Nothing really

His conclusion? Forgetaboutit. It’ll never changes. Risko Robert

72 Q2.2013 Korn/Ferry

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