sept/oct 2011 issue

CEOs and Government

Must business leaders also be statesmen?

Should You Blog?

CEOs share their personal social media strategies

Roundtable: Chinas FutureCEOs discuss developments in the

worlds fastest-growing market

CEO of the Year 2011

Fords Alan Mulally on leading in challenging times

SEPTEMBER/OCTOBER 2011

CEOs and SOCial MEdia

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september/october 2011 chiefexecutive.net 01

two ways: less diversity within groups and more alienation between groups.

The implications for CEOs are direct: More groupthink inside groups and more conflict between groups. How to deal with Internet-enhanced groupthink is the subject of this article.

The Perils of Groupthink

Groupthink is a process of conformed, suboptimal rationalization that comes about subliminally when group members feel constrained to hold similar beliefs. It may be generated, inadvertently, by dom-

inant leaders who discourage dissent or manage by praise, or it can develop with-out leadership when powered by group loyalty and pride. Once present, group-think is perniciously robust in that it feeds on its own results: the more group members think alike, the better and hap-pier they feel, which reinforces their con-formed behaviors. Thus, groupthink enhances bad decisions via a positive feed-back circuit that does not self-correct.

Although groups form sponta-neously by common interests or are brought together for specific purposes, groups can emerge for the slightest of reasons. As such, groupthink is perva-sive in its potency for producing poor decision-making.

The term groupthink was coined in 1952 by William Whyte, an organizational analyst, and was researched by Irving Janis, a social psychologist. Groupthink is said to have spawned the failed Bay of Pigs invasion of Cuba during the Kennedy administration, and the disbelief that the Japanese would attack Pearl Harbor in 1941 in the face of substantial evidence.

Groupthink emerges when groups are more cohesive, where members know one another well, have long-standing work-ing relationships and personal friendships and where there is good esprit de corps.

All these factors are often good, but they can also engender complacent discussions and the lack of critical, disruptive argu-ments, and thus lead to flawed outcomes. No group is immune from groupthink. Recognizing Groupthink

Janis called out eight warning signs, organized under three types, that can help identify groupthink. Type I: Group overestimations of itself:

1. Illusions of invulnerability. Members are inordinately optimis-tic, ignore obvious dangers and take unwarranted risks.

2. Illusions of superior morality. Members exaggerate the positive ethical consequences of their actions and downplay the negative ones.

Type II: Closed-mindedness:

3. Rationalization. Members explain away and discredit warning

signs that contradict the groups conclusions.

4. Stereotyping. Members reject those opposed to the group by char-acterizing them as ignorant, mis-guided, prejudiced, spiteful or malicious.

Type III: Pressures toward uniformity:

5. Self-censorship. Members reject dissenting views that run counter to the group consensus.

6. Illusions of unanimity. Members falsely assume complete agreement and count silence as consent.

7. Pressure to conform. Members coerce other members to support the groups consensus with veiled threats of implied disloyalty.

8. Mind guards. Members appoint themselves to police the group and purge it from adverse information and dissenting views.

Antidotes to Groupthink Poison

The key for resisting groupthink,


The implications for CEOs are direct: More groupthink inside groups and more conflict between groups.

Cover Story

25 CEOs and Social Media With momentum building around the marketing potential of

Twitter, Facebook and Google+, how can companies leverage the mediumand how personally involved should business leaders be? by Dale Buss

06 Editors Note

08 Letters featureS

12 CEO Chronicles SPXs Chris Kearney incites innovation Campbell Soups Doug

Conant on nurturing engagement Socit Gnrales Severin Cabannes seeks diversity CEO Watch: Novartis CEO Joe Jimenez goes for growth.

20 CEO Confidence Confidence has hit a 10-month low.

21 Chief Concern Leaders must take a stand on government policy.

by Gary Shapiro

22 Uncommon Wisdom Be wary of Internet-generated groupthink.

32 Raising Sales Force Effectiveness What works and what doesnt.

by Howard Stevens and Geoffrey James

38 26th Annual CEO of the Year Fords Alan Mulally urges his fellow CEOs to persevere in

nurturing economic growth.

41 CEO Roundtables Whats Next for China? Chinas future depends on overcoming

significant hurdles. Under a Watchful Eye: Is Governance Inhibiting Corporations Ability to Help Shape U.S. Economic Policy and Recovery?

September/October 2011 No. 254

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22

32

0105_TOC.indd 3 8/23/11 9:17 PM

company averages is equiv-alent to saying all actors are overpaid based on what Adam Sandler and Johnny Depp make.

The median cash com-pensation for CEOs of pri-vate companies with revenue of between $250 million and $999.9 million was 3.8 times the median for CEOs of pri-vate companies with between $5 million and $9.9 million in revenue, and the gap was even wider at larger compa-nies. For example, the median compensation for private company CEOs with reve-nues over $1 billion was 7.8 times that of the $5 million to $9.9 million revenue group. Yet, the top quartile compen-sation was $1,045,000which means that almost three-fourths of private company CEOs earned less than $1 mil-lion in 2010.

In addition, the perks the vast majority of CEOs enjoy (see Prevalence of Perqui-sites, p. 51) are rather mod-est. Access to personal tech gadgets and a company car hardly ever approach the likes of Dennis Kozlowskis $6,000 shower curtains. In fact, only 4.5 percent of private com-pany CEOs have personal access to a company jet.

More information about the 2011 CEO & Executive Compensation Report for Private Companies, which includes information on base salaries, bonuses, equity gains, benefits and perks and how CEO compensation var-ies by company size, indus-try, type of ownership and geographic region, can be found at ChiefExecutive.net/compreport. Source: The 2011 CEO & Executive Compensation Report for Private Companies, ChiefExecutive.net/compresearch


93.2%20.3%

11.5%

4.5%

64.1%

14.7%

17.6%

10.6%

32.1%

12.4%

34.1%

PERSONAL TECHNOLOGY(CELL PHONES, IPADS)

COMPANY CAROR ALLOWANCE

SEVERANCEAGREEMENT

PARKING

GOLF/COUNTRYCLUB MEMBERSHIP

HEALTH/FITNESS/GYM MEMBERSHIP

ESTATE ANDFINANCIAL COUNSELING

SPOUSE TRAVEL

TAX GROSS UPS FORTAXABLE BENEFITS

PERSONALTRAVEL

PERSONALACCESS TOCOMPANYAIRPLANE

Prevalence of PerquisitesThe median private company CEO benets and perks package was valued at $30,000, with just 4.5 percent of CEOs getting personal access to a company jet and 11.5 percent receiving a gross-up on the tax on perquisites. The average S&P 500 CEO received a benets and perks package valued at $243,000 in 2010.

33.4%

EMPLOYMENTCONTRACT

3.4%INTEREST-FREE

LOAN

The median private company CEO benets and perks package was valued at $30,000, with just 4.5 percent of CEOs getting personal access to a company jet and 11.5 percent receiving a gross-up on the tax on perquisites. The average S&P 500 CEO received a benets and perks package valued at $243,000 in 2010.

Prevalence of Perquisites

50 Chief Executive Research Private Company CEO Compensation

The media is wrong about CEO compensation.

52 CEO Essentials The View from Social Media

Should CEOs have personal blogs? by John Kador

54 Special Section: CEO Legal Guide Chief Executives first annual guide to how to find, hire and work with

corporate law firms. By C.J. Prince

65 Executive Life Top Wheels: Part I

The five best cars for work. By William J. Holstein and Michael Jordan

71 Flip Side Take One Tablet and Call Me in the Morning

Introducing sneakers with speakers, tables with tablets and more. by Joe Queenan

final word

72 Garrotted by Red Tape

Correction: Chief Executives July/August issue (Finding Your Achilles Heel) erroneously reported that David Greenwood, CEO of Geron Pharmaceuticals, resigned. In fact, David Greenwood was appointed CEO when Thomas B. Okarma, Ph.D., M.D., was ousted.

contents

50

54

65

CHIEF EXECUTIVE, USPS # 431-710 (ISSN 0160-4724) is published bimonthly by Chief Executive Group, LLC with executive and editorial offices at One Sound Shore Drive, Suite 100, Greenwich, CT 06830. Wayne Cooper, president. Copyright 2011. Published and printed in the United States. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited. Annual subscriptions are $196. U.S. single-copy price is $13.95. Periodicals postage paid at Greenwich, CT and additional mailing offices. POSTMASTER: Please send change of address to Chief Executive, PO Box 15306, North Hollywood, CA 91615-5306. For subscription inquiries, call 818-286-3119. All reprint and permission requests should be made to The YGS Group. Phone: 800-290-5460, ext. 125.

02 chiefexecutive.net september/october 2011

0105_TOC.indd 4 8/23/11 10:55 PM

features Globalization & technology: embrace tomorrows strategiesWhy you cant recruit or retain todayscustomers with yesterdays strategies. by Robert Bloom

three attributes to Diagnose Organizational Health (Performance Isnt One of them)Findings from a decade-long research project by McKinsey & Co. by Scott Keller and Colin Price Is Your Company Missing the Boat on Pricing Opportunities? Most companies are timid when it comes to price increases, but expert price optimization can be a solution. by Ed Sullivan

How to Mine social Media feedbackThree-fourths of businesses dont know what their customers are saying about them and 31 percent dont measure the effectiveness of social media. Heres how to use social media intelligence intelligently. by Ashish Gambhir

Making Litigation Management Work for YouOverwhelmed by legal action you barely understand? Some disputes can be resolved more economicallyand LM can help align legal strategy with business goals. by James D. Shields

the Only three things a Leader should focus OnBrains, Bones and NervesAs a leader, deciding where to spend your time is by far your biggest challenge. by Rajeev Peshawaria

IBMs Corporate evolution by DesignIn June, IBM celebrated its centennial. What can other leaders learn from Big Blues legacy? by Steve Hamm

storytelling: a tool to engage and align employees Every company should have its own Iliad or Odyssey to create a higher sense of purpose and mission to those who work there. by Bill Baker

employer tax Changes triggered By Health Care reformBeyond the controversial individual mandate, here are the key provisions that directly affect all employers. by Vishal S. Petigara

Design for Conflict: Why You should Have a few fights in Your Company Sometimes a little tension can produce more creativity and productivity. by Greg Kesler and Amy Kates

What CeOs Need to Know about New Governance Developments Despite judicial rejection of the proxy access rule, companies will have to defend their position on executive compensation and stay vigilant about union pension fund activism. by James R. Copland five Ways to Get the Governance We Want The key to good corporate governance remains a strong commitment to ethics. by Steve Odland top three security Concerns every CeO should Know Most security breaches are not caused by a Trojan horse from outside, but from human error and poor security discipline inside. by Mark Boltz

eNtrePreNeurIaL CeO How to Deliver superior Customer service The CEO of a small Connecticut bicycle business shares his four-point framework for delivering on value for the customer. by Chris Zane

What CeOs Can Learn from the Mailman Lessons from the USPS for the U.S. CEO. by Robert M. Donnelly

states and tax IncentivesWhat You Need to Know Thinking of starting a new business or relocating an old one? Heres a guide to credits and incentives that make the most sense. by Dean Zerbe

top 10 International tax Pitfalls Operating across borders brings tax complexity. Heres how to get it under control.by Rono Ghosh, Jack OMeara and Allan Smith

September/October 2011

aLWaYs avaILaBLe

BOOKs IN revIeW GETTING PRACTICAL ABOUT PRACTICING INNOVATION

By Bob Donnelly

A review of The Innovators DNA, by Jeff Dyer, Hal Gregerson and Clayton Christensen (Harvard Business Review Press)

CeO BrIefING

CeO CONfIDeNCe INDex

contents

http://chiefexecutive.net/ GoogleCEOChiefExecutive.net | Chief Executive Magazine


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Why Everyone Is Going SocialA new book, The Social Organization, by two Gartner analysts, Anthony Bradley and Mark McDonald, sums up the popular conceptions of social media (SM) technology since its emergence at the beginning of the last decade.

Social media doesnt deliver real business value and can waste a lot of employee time. Social media poses unacceptable risks to privacy, IP protection, regulatory compliance, HR infrac-tions and customer service. Social media is just another marketing channel. Get a Facebook page, open a Twitter account, give your CEO a blog, and load some cool videos on YouTube and youre done. All you need to do is provide social media technology and the rest will happen on its own. After all, thats how it happens on the Internet. You dont need a business justification for social media because its so cheap and you cant anticipate or measure the benefits anyway.

The hype surrounding social media is, indeed, astounding. Its adherents claim it will do everything except cure cancer. But the folks at Gartner who have studied this phe-nomenon at hundreds of companies caution business leaders against dismissing its pos-sibilities out of hand, or worse trying to capitalize on this technology in a ham-fisted way. True, it can deliver little value and waste time if one goes about it the wrong way. Yes, it can pose risks, but these can be mitigated and managed like any other. Brad-ley and McDonald argue that SM isnt just another marketing channel but that success requires a lot more than flogging the technology itself. And, most importantly, one can measure the benefits, which is good because it can be a lot more expensive than it appears.

This brings me to this issues cover story, which seeks to open a conversation about how leaders can best get their arms around this beast we call social media. (See p. 25.) As the story underscores, many CEOs are frustrated by their inability to incorporate the technology into their business strategy in ways that are familiar or compute the stan-dard ROI analysis. Nonetheless, big bets are being made. As we reported in an earlier cover story on Fords Alan Mulally last November, Ford earmarked a fourth of its mar-keting budget to advance its brand through social media and reaped big rewards in sell-ing its Fiesta.

We aim to pursue this conversation about this and related technologies, including mobility and cloud computing at our CEOtech conference, The CEOs Role in Harness-ing Emerging Technology, to be held on October 18 and 19 on the campus of Stanfords Graduate School of Business in Palo Alto, Calif. Speakers such as eBays John Donahoe, San Francisco Giants CEO Larry Baer, MicroStrategys Michael Saylor and Kaiser Per-manentes George Halvorson will be on hand to share experiences and insights in lever-aging these technologies in ways that improve customer relationships, raise operational efficiencies and advance sales and marketing goals in ways that are new and cost effective. The time to register is now: www.ChiefExecutive.net/CEOtech. Hope to see you there.

06 chiefexecutive.net SePteMBeR/OctOBeR 2011

editors note

editor in chief

editor at Large

Art Direction

Production Director

copy chief

contributing editors

Photographer

Online Associate editors

ceO entrepreneur

Publisher

vP, Associate Publisher

vP, Sales central

vP, Director, integrated Sales

east

Director, Business Development


Wv, vA, nc, Sc


Director, Online

J.P. Donlon

Jennifer Pellet

fastlane

Rose Sullivan

Rebecca M. cooper Dale Busscheryl einhornWilliam holstein Geoffrey JamesMichael Jordan John KadorRobert Lawrence Kuhnc.J. PrinceJoe Queenanhoward Stevens

Paul O. colliton Karin Moyerfayazuddin A. Shirazi Robert M. Donnelly

Marshall cooper Phillip G. Wren203/930-2706 [email protected] christopher J. chalk847/[email protected] frank Rosa203/930-2708 [email protected] cristina vittoria203/[email protected]

Mark Lamborn304/[email protected]

catherine hanson770/[email protected]

Michael Bamberger203/[email protected]

Wayne cooper Chairman & President

Marshall cooper Chief Executive

One Sound Shore Drive, Suite 100 Greenwich, ct 06830, 203/930-2700

0607_editorsnote.indd 2 8/23/11 9:19 PM

Marriot_CEO.indd 1 8/10/11 12:35:29 PM

A Few Things About Those Six Things

I have a great deal of respect for what Mr. Mulally has done with Ford (The Road Ahead, July/August 2011). I also have faith in their products, having per-sonally purchased a 2011 Lincoln MKX for my wife and a 2012 Focus for my daughter. Both have navigation systems with in-car technology interfaces (MyLincoln Touch, MyFord Touch and SYNC).

However, I would add a caveat to the sixth tenet (Stay inventive during tough times) in the articles list of six things CEOs can learn from Mulally: If youre going to stake the companys future on cutting edge technology, you better make sure it works. The MKX is a great vehicle in most respects, but it has been plagued with problems from day one with the MyLincoln Touch and SYNC interfaces. There are connectivity issues along with issues with the voice recognition and the system in general just shutting down for no reason. Ford Customer Care has been very understanding and acknowledged that they are having problems, but as of this writing they still dont have a solution.

Unfortunately, Ford failed to show courage as stated in the first tenet (Dis-play courage in the face of adversity), by initially denying the problem existed. Their press releases stated that the sys-tem was very intuitive and the buyers just needed more training (a contradiction in terms). They went so far as to blame the dealers for not spending enough time with customers at delivery. Try telling that to my tech-savvy wife.

Accordingly, Ford has taken a hit in the marketplace based on the just released J.D. Power & Associates quality rankings [on which it dropped 18 spots from last years list]. They appear to have gotten their act together, but it will take some time to get the egg off their face.

John J. Vitas President

A-C Equipment Services Corp.

Milwaukee, Wis.

Pensions Not the Problem

Certainly, public pension funds con-tinue to face financial challenges caused by the recklessness of Wall Street. But leaping to the conclusion that public pensions are the reason behind lagging competitiveness, increased outsourc-ing and states budget challenges (Pen-sion Pickle, May/June 2011) is absurd when in most states pensions represent a small portion of budgets. In fact, the Cen-ter on Budget and Policy Priorities deter-mined that pension contributions average just 3.8 percent of state and local budgets. The article also fails to note that in most states, the majority of pension benefits are paid for with employee contributions and investment returnsnot tax dollars.

The article also ignores the growing panic Americans feel about retirement. As corporations switched from pensions to individual 401(k) plans, the retirement prospects of middle-class Americans have suffered. For example, The Wall Street Jour-nal recently reported that the median 401(k) account balance for near-retirees was less than one quarter of what theyll need to maintain living standards.

Its also curious that one of the compa-nies quoted in the article froze its pension plan for rank and file employees, yet the executive team continues to receive gener-ous pension benefits. According to Titan Industries 2011 Proxy, its CEO will receive a Normal Supplemental Retirement Ben-efit, of $44,000 a month. Pensions work for corporate executives, but not for their employees, nor for lower paid public workers like police officers, firefighters and teachers?

Diane Oakley Executive Director

National Institute on

Retirement Security

Washington, D.C.


letters

Chief Executive of the Year2011 Selection Committee

Dan S. Glaser

Chairman and Chief Executive, Marsh

Hugh Grant

Chairman, President and Chief Executive,

Monsanto

2010 Chief Executive of the Year

Fred Hassan

Chairman, Bausch & Lomb

C. Robert Henrikson


MetLife

William Hickey

President and Chief Executive,

Sealed Air

Christine Jacobs


Theragenics

Kristian P. Moor

President and Chief Executive, Chartis

William R. Nuti

Former Chairman and Chief Executive, NCR

Steve Odland

Former Chairman and Chief Executive,

Office Depot

Thomas J. Quinlan III

President and Chief Executive, RR Donnelley

Jeffrey Sonnenfeld

President and Chief Executive,

The Chief Executive Leadership Institute,

Yale School of Management

James Turley

Chairman and Chief Executive, Ernst & Young

coNTAcT uS

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Greenwich, CT 06830www.chiefexecutive.net

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Driven!

Clouds Big Promise

Six mistakes CEOs make in the cloud

Cyber-Sabotage

How to bulletproof your company

Maximize MarketingFive strategies to boost

CMO effectiveness

Eight Extreme CEOs

They scale mountains, race motorcycles and defy death

Where Alan Mulally

CEO OF THE YEAR

Is Steering Ford

july/AuguST 2011

Cover.indd 1 6/16/11 10:25:52 AM

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Raise and PRay

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It may work in poker,

Introducing The CEO and Executive Compensation Report for Private Companies, a groundbreaking report that will: Help you craft compensation practices that motivate and reward the right activities, attitudes

and outputs by your executive team Enable you to attract and retain the right senior talent Provide benchmarks on your own compensation relative to your peers

While there is a lot of attention placed on CEO compensation at Americas largest public companies, until now there has been almost no reliable data on private companies. Existing surveys rely upon job-seekers and other unreliable sources.

In developing The CEO and Executive Compensation Report for Private Companies, Chief Executive Group gathered data and best practices on over 1,600 current CEO and senior executive positions at 680 companies. Plus, weve gathered best practices specific to private companies, including phantom equity, appreciation rights and other innovative techniques you can use to better align your team.

but its not an effective talent strategy.

For additional information on The CEO and Executive Compensation Report for Private Companies, please visit ChiefExecutive.net/compreport


Much has changed at SPX since CEO Chris Kearney first joined the company as vice president and general counsel in 1997. At the time, the company was a Muskegon, Michigan-based U.S. automo-tive supplier with less than $1 billion in annual revenue.

By the time he took the CEO seat in 2004, a seemingly endless stream of acqui-sitions21 in 2000 alone, and about 98 total, says Kearneyhad transformed SPX into a multi-industry provider of engi-neered solutions. Bursting at the seams in its Michigan offices, the company relo-cated to accessible, business-friendly Charlotte, North Carolina, the hometown of United Dominion, a diversified manu-facturer it had recently acquired.

Enter Kearney. We were at a point were we had to mature and figure out what we really wanted to be going for-ward, he recalls. After sifting through a portfolio of businesses that spanned nine business platforms and identifying those with the most growth potential, Kear-ney set about divesting the company of the rest. The result? SPX became a global company focused on servicing three broad end markets: energy, food and vehicle services.

From there the former automotive sup-plier motored along pretty well, report-ing annual revenue growth of between 8 percent and 10 percent until the eco-nomic downturn hit. We started to see a dropoff in 2009, says Kearney, who notes that SPX closed 16 facilities, reduced head-count by 13 percent during the rough

patch and reduced its debt. We used that bad time pretty wisely and did some sig-nificant restructuring.

In 2010, as signs pointed to recovery, Kearney set a course for growth with the launch of an initiative geared toward gen-erating promising innovations. The cor-nerstone of the effort was the formation of a centralized Innovation Council charged with identifying and developing game-changing technologiesSPXs most cru-

cial challenge going forward. Made up of scientists, engineers, lawyers and mar-keting executives, the Innovation Council hosted 25 idea webcasts with employees.

The challenge was, If we would allow you to do anything you wanted to in terms of launching new products or break-through ideas in new businesses, what would you do? explains Kearney. The series of webcasts netted approximately 170 ideas, which were winnowed down to 10 over the course of a year.

We knew that to get traction on this initiative, we needed a real process that

required this corporation to put money where its mouth was by funding those best ideas, reports Kearney. So what fol-lowed was a Socratic dialogue with the business, where we went through a selec-tion process and chose 10 ideas to [put a total of between $10 million and $15 mil-lion behind].

While none of those seedlings have germinated into products or services as of yet, several have serious potential, he reports. There were five or six excit-ing ideas that are under development and which were tracking on a regular basis, he says. One of the best is a breakthrough wireless broadcast technology that gets about 10 times the coverage of a normal cell tower and costs about 25 percent less to operate. We believe it provides a terrific solution for rural parts of the world that lack infrastructure.

But perhaps more than any one idea, Kearney is most excited about the cultural shift that the program has brought to SPX. To the extent that you can find break-through ideas and create these new break-through businesses, you will have the opportunity to up the ante in a bigger way on change, he says. And when you are successful with it, that success becomes very contagious.

So the most important thing is ignit-ing this passion and interest in innova-tion and bringing your businesses more in touch with their end marketswhich is what we think were doing, he adds. Thats the new frontier in the next stage of development for us.

We were at a point were we had to mature and figure out what we really wanted to be going forward.

Going for Game-ChangersSPXs Chris Kearney on spearheading a search for Big Ideasby Jennifer Pellet

SPXs Chris Kearney

12 ChiEfEXECUtivE.nEt SEPtEMbEr/OCtObEr 2011

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ceo chronicles


While many expected the global reces-sion to be a challenging time for deal-mak-ing, a recent study by KPMG reports the reverse. The number of deals made between January 2007 and July of 2009 considered to be successful actually rose to 31 percent ver-sus 27 percent in the last period studied, (See M&A Success Report, at right). The study, A New Dawn: Good Deals in Challenging Times, suggests the boost in success rates is likely a result of increased scrutiny, leading compa-nies to ensure not only that they were doing the right deals, but also paying close atten-tion to deal execution and integration. In the more difficult environment, acquirers knew their deals would be under close scrutiny from shareholders and the market, and they made sure that their deals were well exe-cuted, for the right reasons, and at the right price, says Dan Tiemann, KPMGs global transaction services leader.

When asked what they would do differ-ently in their next deal, most survey respon-dents cited better due diligence (19 percent)and faster implementation/integration (17 percent) Some companies start integration planning before deal agreements are even signed to ensure expected synergies from the deal can be realistically achieved, says Steve Miller, national lead of KPMGs U.S. Integra-tion Services team Embedding speed into the process is critical.

InBox: M&A TakeawaysThe percentage of successful deals rose during the global recession, report deal-makers.


M&A Success ReportThe Number of M&A Deals that Enhanced Value Rose during 2007-2009

Enhance Neutral Reduce

0%

100%

WhoseMarket? Sellers Buyers Buyers Balanced

CorporateBuyersSellers

1997 - 1998

17%

53%

30%

1999 - 2000

30%

31%

39%

2000 - 2002

34%

31%

35%

2004 - 2005

31%

26%

43%

2005 - 2006

27%

39%

34%

2007 - 2009

31%

32%

37%

M&A Success ReportThe Number of M&A Deals that Enhanced Value Rose during 2007-2009

Enhance Neutral Reduce

0%

100%

WhoseMarket? Sellers Buyers Buyers Balanced

CorporateBuyersSellers

1997 - 1998

17%

53%

30%

1999 - 2000

30%

31%

39%

2000 - 2002

34%

31%

35%

2004 - 2005

31%

26%

43%

2005 - 2006

27%

39%

34%

2007 - 2009

31%

32%

37%

For more from KPMGs A New Dawn: Good Deals in Challenging Times, visit www.ChiefExecutive.net/M&ATakeaways

Chris Kearney behind the wheel of an SPX-donated Ford Mustang Challenge race car that was auctioned off for charity.Z

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AD


ThornWhen Congress passed the Dodd-Frank omnibus overhaul last year it also handed compensation consultants a full employment benefit with a Say-on-Pay provision allowing shareholders to vote on executive compensation.

Drum roll for the big result. Shareholders at 98.5 percent of companies approved, with only 39 of 2,532 companies reporting a rejection. The vote is non-bindingmeaning companies dont have to change anything even if shareholders disapprove. So what exactly was the point?

RoseThe $4 billion carmakers, both U.S. and foreign, are now investing in their North American operations marks a sharp reversal from past plant closings and layoffs. Toyota is putting $1.3 billion in an assembly plant in Mississippi.

Ford is spending $600 million to overhaul a plant in Kentucky. Lets hope the industry gets it right this time.

Thorns &Roses

Rules for Leaders

Behavior matters, asserts Douglas R. Conant, who recently retired from his post as CEO of Campbell Soup after a suc-cessful 10-year run. Its not just what you say, its what you do, and its what you do every momentfor CEOs in particular.

Conant, who recently partnered with consultant Mette Norgaard to write Touch-Points: Creating Powerful Leadership Con-nections in the Smallest of Moments, is on something of a mission. The veteran of successful turnaround efforts at Nabisco and Campbell is urging CEOs to recognize the importance of every exchange with employees, no matter how small. Youre on display 24/7, he notes. Its not the words on the wall, its how you show up in every interaction.

Its CEOs who look for and act on every opportunity to deliver that authen-ticity who succeed in engaging employ-ees, he notes. Thats when they will go the extra mile to advance the agendawhere the relationship is viewed as a prin-ciple of honor rather than a transactional relationship of a good days pay for a good days work.

Conant honed that leadership phi-losophy over years of working to re-engage disenfranchised employees at both Nabisco (where he revitalized the floun-dering Planters and LifeSavers brands and launched Snackwells while head of marketing at the $3.5 billion company) and Campbell Soup Company, where he took the CEO seat only after the global food company had frittered away half its mar-ket value. When I came into Campbell I told the board, You cant talk your way out of something you behaved your way into, he recounts. Three years into his corporate culture-building program, The Campbell Promise: Campbell Valuing People. And People Valuing Campbell, the company was back on track. It went

Doug Conant, former CEO of Campbell Soup CompanyZ

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ceo chronicles


on to deliver double-digit increases for the next five years.

While quick to note that the long-term perspective of the companys found-ing family shareholderswho hold about half its shareshelped, Conant feels that all CEOs can boost results by nurturing engagement. There are lots of opportuni-ties to validate good behavior, create clear direction and give employees energy, he says. You just have to be vigilant.

So how can CEOs transform otherwise ordinary interactions into powerful leadership moments? Conant outlines three steps:

Listen Intently. CEOs often feel besieged with interruptionsfrom casual hallway chats and phone calls to text exchanges. But each of those communica-tions are also opportunities to influence employees. Careful listening lets you make the most of them.

Frame the Issue. Before you move to action, take the time to summarize what youve heard. In addition to ensur-ing that you understand this issue, fram-ing the problem can help the employees embroiled in it to gain clarity around the issue.

Advance the Agenda. When peo-ple come to the CEO with an issue, they want to make progress. Work with your employees to identify the next steps to take and who will take themwhether that means making a decision then and there or connecting them to someone who can help.

Driving Diversity

Like most financial institutions these days, Socit Gnrale is adjust-ing its exposure to crises, says Severin Cabannes, one of three deputy CEOs who serve under chairman and CEO Frdric Ouda. Our new strategy is growth at lower risk, he asserts, echoing a senti-ment widely held by todays CEOs. We have implemented new limits in terms of market risk appetite, stress test limits and value-at-risk limits. But were also chang-ing what I call the culture in terms of risk management, which involves greater awareness of the real risk reward of each operation.

The Paris, France-based global bank-ing concern, which holds $2,259 billion

in assets, is also pressing forward on a topic getting a bit less play in todays econ-omy-obsessed environment: diversity. Although Socit Gnrale has a pres-ence in 82 countries around the world and just 60,000 of its 160,000 employeesor 37 percentare French, its management is predominantly French. Of the top 50 players, only 20 percent are non-French, reports Cabannes, who says that the com-pany is working to address that disparity as well as a dearth of women managers.

We have two [objectives] among our diversity requirementsto promote women and to promote non-French col-leagues, he notes, adding that Socit Gnrale has a future leaders program geared toward furthering those goals. Our internal mid-term objective is to get from 20 to 35 percent.

The effort is as much about business as reputation, he adds. When you have different perceptions, different view-points on a team, you create value, says Cabannes. Our ambition on this is not only for the sake of image.

But perhaps most ambitious of Socit Gnrales targets is its push for global growth. The bank has set its sites on three milestones: ranking among the top five non-U.S. banks in the U.S., among the top three retail banks in Central and Eastern Europe and Russia, and among the top five corporate and investment banks in Europe. We are a global bank, even if our first footprint is Europe, says Cabannes, who notes that Socit Gnrale has a leading international position in equity derivatives, a strong geographic presence abroad and sector expertise, particularly in natural resources and energy. The U.S. represents 20 percent of our total revenue, and we anticipate maintaining that share as we pursue significant potential for growth in Russia, Eastern Europe, Africa and the Middle East, as well as in retail banking in France.

Annual sales per square foot for Apple, Tiffany and Best Buy retail stores, respectively: $4406, $3070, $880

Number of people with more than $1 million to invest in 2010, up 8.3% from 2009: 10.9 million

Percent of Americans who have saved less than $25,000 for retire-ment: 39

Percent who saved more than $500,000: 7

Percentage of private-sector work-ers with pension plans in 1979 whose plans were defined-benefit: 62

Today: 7

Change in the number of U.S. stock listings from its peak in 1997: -43%

Factor by which listings in interna-tional exchanges, (primarily Hong Kong, China, and India), exceed those trading on U.S. exchanges: 8

Percent of the worlds $7.9 trillion amount of gold owned by the U.S. government: 4.9%

Amount of gold, in tons, everyone would receive if all the gold in the world were evenly distributed to the subscribers of Chief Executive: 3.75

Value of those shares based on the price of gold on July 12, 2011: $188.1 million

Minimum number of times the calcu-lation of the Consumer Price Index (CPI) has been improved since 1980: 20

Official rate of inflation, measured by the current CPI: 3.2%

As measured by the unimproved CPI: 10.7%

Minimum percentage of mortgages in Las Vegas that are currently under-water: 70

Change in the number of passengers from March 2007 to March 2011 at Las Vegas International: -13.7%

At San Francisco International for same period: +24%

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Compiled by John Kador

Continued on p. 18

In Fact

Socit Gnrales Severin CabannesZ



Big Pharma is facing rapid structural changes in several areas of its traditional business. Drug discovery is increas-ingly expensive and generics are grab-bing more and more share while pressure on margins continues unabated. Many blockbuster drugs are coming off pat-ent in record numbers. Pfizers best sell-ing Lipitor, for example, comes off patent in November of this year. Next year, Merck faces patent expiration for its top-selling asthma medication Singulair. Most firms are struggling to maintain spending on R&D investment amid cost cutting and slowing economic growth. Meanwhile, governments everywhere are seeking ways to control healthcare costs and are looking to cap the drug prices their public health systems are willing to pay.

The Swiss giant Novartis aims to trans-form itself from a pharmaceutical com-pany to become a broader-based health care company over the next five to ten years. To do this it has been strengthening its core competence of science-based inno-vation while focusing on five high-growth segments of healthcare: Pharmaceuticals, eye care, generics, consumer health and vaccines and diagnostics.

When he was named chief executive in February 2010, Joseph Jimenez had to fill some big shoes, replacing Daniel Vasella who ran the company for 14 years. Jimenez is neither a physician nor a scien-tist; he isnt even Swiss. Born in Walnut Creek, Calif., he earned a bachelors degree at Stanford and an MBA from Berkeley in 1984 before joining Clorox in nearby Oakland. This launched a career in con-sumer package goods that ultimately led to H.J. Heinz where he became president and CEO of its North American business. While Jimenez was serving as president and CEO of Heinz Europe from 2002 to

2006, Astra-Zeneca chairman Percy Barn-evik asked him to join the Anglo-Swedish pharma companys board where he served until 2007. Vasella then tapped him to join Novartis in April 2007 as divisional head of its consumer health unit.

When I first joined, some skeptics said, This guys not a physician or a sci-entist. Are we sure we want him leading us? he recalls. When I became CEO, those who didnt know me from the phar-

maceutical division had the same reaction. It was a legitimate question, and it wasnt until I proved myself with that division that I got the kind of support that I have today.

Jimenez is fortunate that his predeces-sor left a robust pipeline at a time when others are running close to empty. In addi-tion, the companys pharmaceuticals are running ahead of the industry in key areas of R&D productivity. Its median success rate for approvals in pre-clinical trials is 72 percent vs. the industrys 64 percent. In Phase III trials the comparable figures

are 82 percent vs. 67 percent respectively. But even Novartis faces a big hole when the patent for its $6 billion blood pressure drug Diovan expires. It has no replace-ment for the U.S. market, which may expe-rience flat growth for the next five years until the pipeline kicks in. In the mean-time, Jimenez is betting that the BRIC countries will generate the growth that Europe and America is not offering.

The affable Californian sees his mis-sion as growing faster than market rates in all of five segmentsno small achieve-ment if he can pull it off. Five years from now I want to be able to look back and say, Weve taken this pharmaceutical com-pany and turned it into a broad-based health care company. Recently Chief Executive caught up with Jimenez at the Palace Hotel in New York during a brief visit.

So whats your strategy for growing faster than the market?

We approach R&D differently than most health care or pharmaceutical com-panies. Ten years ago, to develop a block-buster drug one needed to target a broad therapy area like hypertension with large patient groups. After a while a new com-pound was developed that might be incre-mentally better than the rest. Then the company would build a massive sales force to market it. Our approach is dif-ferent. We take what we call a pathways approach, where we seek to understand the pathway of a particular disease. We usually start with rare diseases.

Doesnt that limit you, though?Well, it does. But if you look at the

pathway for a rare disease, it usually has a genetic basis in one or two mutations, so its a very homogeneous type of a disease.

ceo chronicles > ceo watch

New Growth Strategy for NovartisCEO Joe Jimenez faces mature markets in the U.S. and Europe and must grapple with the structural changes in R&D productivity facing Big Pharmaby J.P. Donlon

Novartis CEO Joseph JimenezZ

The Swiss giant Novartis aims to transform itself from a pharmaceutical company to become a broader-based health care company over the next five to ten years.


Incidents of suspected mortgage fraud in 2010: 70,472

Percentage change in such incidents since 2000: +1,900

Number of bank failures as of July 2011: 51

Difference in state gasoline taxes per gallon between the lowest taxed state (Alaska at 8 cents) and highest (Connecticut at 51.9 cents): 43.9 cents

Difference in the average retail price per gallon of gasoline between the two states as of July 2011: two cents

Percentage increase since last year in roadside calls to AAA from drivers who have run out of gas: 14 Amount of loans outstanding to small businesses at the end of March 2011: $609 billion

Change from a year earlier: -8.6%

Average time, in hours and minutes, Americans watch TV each weekday in 2010, up 5.4 minutes since 2007: 2:31

Change in the 4 hours and 24 minutes Americans spent in work and work-related activities each day in 2010, compared to 4 years earlier: -25 minutes

Amount lost by the inability of the 50 states to collect online sales taxes in 2011: $10.1 billion

Price paid at auction by a Dallas doc-tor for a PORSCHE vanity license plate: $7,500

Percent of vehicles with personalized tags in Virginia, which has highest penetration of vanity plates in U.S.: 16

Total earnings of federal savings banks, or thrifts, in 2010, the first profitable year since 2006: $6.6 billion

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In Fact

ceo chronicles > ceo watch


This allows us to develop a compound that will interrupt that pathway. But the molecular pathway of that disease is also active in many other diseases, so we will develop the compound in a very rare indi-cation, but then expand it mechanistically to other disease areas once its proven that it can interrupt the pathway.

A perfect example is a drug that we launched last year called Ilaris, which we developed for gouty arthritis. Its a rare autoimmune disease that affects less than 10,000 people globally. The market-ing people said, Why would we do this if there are only 10,000 patients? The key to this disease is a pathway called inter-leukin-1, which happens to play a role in severe gout, which affects 3.5 million peo-ple. So we have a compound that works in this rare autoimmune disease that is linked to a pathway that is consistent with a bigger disease like acute gout. Were about to get approval for this compound for use for acute gout. This is a different approach from developing a blockbuster drug 10 years ago.

This suggests a wholly different model of recovering R&D costs to make such a strategy work.

Over the next 20 years, companies will be compensated not on the drugs that we sell but on delivering a positive patient outcome. Its increasingly no longer about the transaction of selling a pill. Payers,

physicians and regulators dont want seven out of 10 people who get a drug not to respond to the drug. So if we offer, lets say, a companion diagnostic and the right therapy, there will be much greater recep-tivity to the prices charged and that will enable us to recover our cost of R&D.

Sounds great in theory. Does it work in practice?

Its working already. Novartis has the greatest number of new drugs approved by the FDA and also in Europemore even if you combine Pfizer and Wyeth and combine Merck and Schering-Plough.

How far in the future will your pipeline provide profitable growth?

We have one of the best pipelines in the industry. Were about to lose patent pro-tection on Diovan, a blood pressure drug that is our largest [source of revenue]. Its a $6 billion drug on a $55 billion company, so its a substantial piece. But because we have a robust pipeline thanks to the Novartis Institute of Biomedical Research using this pathways approach, we are able to offset patent expirations in a way that some of our peers cant. For example, we just launched a breakthrough multiple sclerosis drug that is the first oral therapy for multiple sclerosis, which is taking off. We have a drug called Lucen-tis that we market outside the U.S. (Genentech has it in the U.S., and we

NovartisMerck/SGP

GSKPfizer/Wyeth

J&JBMS

Roche/GenentechSanofi-Aventis

Eli LillyBayer

Astra Zeneca

12 6

EU EMA US FDA

11 2 8 5

7 4 6 5

4 2 2 2 2 2

1 1 1 2

2 0

Novartis led the industry with NME approvals since 2007 in the EU and USNew molecular entity (NME) approvals for selected companies 2007 - 2010

Notes: Novartis includes co-developed or co-marketed products from Ciba Vision, QLT, Index, Genentech: does not include vaccines; Pfizer includes products or Pharmacia + Wyeth; Merck includes products of Shering Plough + Organon; Roche includes products of Genentech; J&J includes of Janssen + Centocor + RWJohnson

Source: FDA and EMA

Sources1 The Wall Street Journal; 2 World Wealth Report, Capgemini and Merrill Lynch; 3-4 Scottrade; 5-6 Employment Benefit Research Institute; 7-8 Capital Markets Advisory Partners; 9-11 Comptroller of the Currency, Chief Executive research; 12-14 Shadow-stats.com; 15 U.S. Department of Housing and Urban Development; 16-17 M.I.T. Airline Data Project, Bureau of Transportation Statistics; 18-19 Financial Crimes Enforcement Network, Department of Treasury; 20 FDIC; 21-22 Chief Executive research; 23 American Automobile Association; 24-25 FDIC; 26-27 American Time Use Survey, Department of Labor; 28 University of Tennessee; 29 Texas Depart-ment of Motor Vehicles; 30 The Wall Street Journal; 31 U.S. Office of Thrift Supervision



market it outside the U.S.). Its for macular degeneration, and it continues to grow significantly.

What is telehealth and why is it important to Novartis?

E-health or telehealth is the inter-face of technology and healthcare. For example, look at social networks that are emerging. PatientsLikeMe.com is a web site for patients with rare diseases to come together and talk about the disease. When we were having trouble recruit-ing patients for a clinical trial of our mul-tiple sclerosis drug, Gilenyal, physicians promoted the drug on the site and helped enroll more people in clinical trials. That enabled us to get the drug to market faster.

Were also investing in a chip-in-a- pill technology connected to remote patient monitoring. Its a microchip in a pill. When a patient takes the pill and it digests, it sends a message to a server that confirms that that patient took

their medication. If the patient doesnt take the medication they get a message saying, We noticed you didnt take your Diovan today. Why not? Or, Is there some problem? This is with no human intervention. The technology already exists.

If, for example, 50 percent of patients stop taking the drug, those are lost sales for us. So we have a vested interest in ensuring that that patient continues to take that medicine. The physician has a vested interest in ensuring that patient stays on medication to ensure a positive outcome.

But does the insurer have a vested interest in paying for this?

Thats the question. They would if they believed that the lack of compliance from the patient resulted in more cost such as greater hospitalization. The onus is on us to demonstrate to the payer that this is a good deal.

As a freshly minted CEO what do you see as your personal strategic challenge?

Novartis has been a loose collec-tion of divisions, meaning each of the five divisions has historically been very autonomous. Theres a huge amount of duplication of work that is transactional in nature, like financial reporting that doesnt add valueduplicating this five times in 70 countries.

You can imagine the cost reduction that could potentially be gained if we were able to consolidate this. One of my biggest challenges is figuring out how to maintain the autonomy of the divisions while cap-turing some of the synergies associated with becoming a broader-based health care company. This is something that the company really didnt face in the past because pharma was so dominant, but pharma has moved from about 80 percent of our total to 50 percent of our total sales because of the growth of the other divisions.

Novartis CEO Joseph JimenezZ


Following a drop in June of more than 12 percent, CEO confidence continued to weaken in July. Hitting a ten-month low, confidence levels fell to only 5.28 out of a possible 10. The Index, Chief Executives monthly gauge of CEOs perceptions of overall business conditions, has seen a 17.4 percent drop from Februarys 2011 high of 6.39. Only 41 percent of CEOs expect busi-ness conditions to be at least good in the next year, a 13 percent drop over the last month and a 42 percent drop from Febru-ary. CEOs also rated current business con-ditions 4.65 out of 10.

Expectations for the future seem to be pessimistic across the board; profit, rev-enue, hiring and capital expenditures all took a hit. Only 60.6 percent of CEOs expect to see an increase in revenue over the next year compared to 74 percent in April and May and 63.7 percent in June. Of those who do expect to see a revenue increase, 55 percent expect the increase to be less than 10 percent.

Profit outlook is also dim, with roughly 52 percent of CEOs expecting to see increased profits as compared to Junes 55 percent and Mays 65.5 percent. CEOs are so wary of future business conditions that more than 66 percent expect that the size of their workforce will either stay the same or decrease over the next year. Those who plan to hire will do so in a limited way; 74 percent of hiring CEOs will increase their workforce by less than 10 percent. This does not bode well for the 9.2 percent of U.S. workers who were unemployed in June.

Another indication of the weak econ-omy is CEOs hesitation to invest in their own company; 42 percent of CEOs expect not to see an increase in capital expendi-tures over the next year. Of the 40 percent that do expect to increase capital expen-ditures, 60.6 percent will increase their investment by less than 10 percent. Philip

Grantham, managing director for Colum-bia Consulting Group confirms the num-bers: There is a level of risk adversity in the executive marketplace that we have not witnessed in a long time. In prior recover-ies, most CEOs have taken a glass half-full approach to the future. In this environ-ment, there is no willingness to make any significant commitments until the economy demonstrates that it is growing again.

And most CEOs seem to think that American businesses are being stifled by over-regulation, a consistent theme for the CEO Confidence Index. One CEO said, our business is being regulated to death by the federal government with more new regula-tions coming with the establishment of the Consumer Financial Protection Bureauenough already! Congress wants busi-ness to get going and hire more employ-ees but the regulatory environment for our business is driving us just the opposite direction.

As businesses continue to be uncertain about the future, the countrys recovery will be weak. As one CEO put it, Invest-ment in business needs to be rewarded, not penalized. Creativity and entrepreneurship are what has built this great nation. Why does this administration want to destroy the essence of the U.S.?

CEO Confidence Hits Ten-Month Low


Online COntent Chief exeCutive s full histOriCal CeO COnfidenCe index data (frOm OCtOber 2002 tO present) is available at: www.ChiefexeCutive.net/CeO-COnfidenCe

CEO Confidence

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What do you expect overall business conditions to be like one year from now on a 1 - 10 scale? (10 = Excellent)

1.2%2.8%

8.8%

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13.1%

20.7%

24.3%

9.2%

3.2%1.6%

% of Results

1220_CEOconfidence.indd 2 8/23/11 9:25 PM

The Internet changes how we think, feel and behave, and the consequences are profound, ubiquitous and irreversible. Although access to 250 million websites and the collective thinking of the worlds population is now the new normal, our mental transformation is as subtle as it is astonishing.

A friend, on vacation in a remote area with no Internet, had to change hotels because his teenage daughter became so distraught. My granddaughter was play-ing simple games on her mothers iPhone before she could talk. A passenger was heard cursing the airplanes Internet

system as being too ($! slow, as if, at 35,000 feet above Colorado, loading any of those 250 million websites in seven sec-onds instead of two seconds was a viola-tion of his God-given rights.

Using search engines alters the struc-ture of our memories: how we remem-ber is literally different. The more we use search engines, the less we remem-ber the facts themselves, but the more we remember how to find them. This is a use-ful adaptation (as long as we have Internet access), but it does confirm fundamen-tal mental change. My concern is how the Internet is affecting groups. CEOs should

be concerned as well, because corporate decision-making is affected. A common but massive mistake is to assume that by making diverse ideas and opinions eas-ily available, the Internet will make people more open to new ideas and more willing to consider opposing opinions. Not so.

Because we self-select sites we visit, the Internet pushes people to reinforce their own preconceived ideas and opinions, such that groups solidify more internally due to the attractive forces of common belief but fragment more externally due to the repulsive forces of opposing belief. This mental malignancy metastasizes in

Uncommon Wisdom


Beware GroupsThe Internet is generating groupthink inside groups and greater conflict between groups.

by Robert Lawrence Kuhn

2629_uncommonwisdom.indd 2 8/23/11 9:25 PM

two ways: less diversity within groups and more alienation between groups.

The implications for CEOs are direct: More groupthink inside groups and more conflict between groups. How to deal with Internet-enhanced groupthink is the subject of this article.

The Perils of Groupthink

Groupthink is a process of conformed, suboptimal rationalization that comes about subliminally when group members feel constrained to hold similar beliefs. It may be generated, inadvertently, by dom-

inant leaders who discourage dissent or manage by praise, or it can develop with-out leadership when powered by group loyalty and pride. Once present, group-think is perniciously robust in that it feeds on its own results: the more group members think alike, the better and hap-pier they feel, which reinforces their con-formed behaviors. Thus, groupthink enhances bad decisions via a positive feed-back circuit that does not self-correct.

Although groups form sponta-neously by common interests or are brought together for specific purposes, groups can emerge for the slightest of reasons. As such, groupthink is perva-sive in its potency for producing poor decision-making.

The term groupthink was coined in 1952 by William Whyte, an organizational analyst, and was researched by Irving Janis, a social psychologist. Groupthink is said to have spawned the failed Bay of Pigs invasion of Cuba during the Ken-nedy administration and the disbelief that the Japanese would attack Pearl Harbor in 1941 in the face of substantial evidence.

Groupthink emerges when groups are more cohesive, where members know one another well, have long-standing work-ing relationships and personal friendships and where there is good esprit de corps.

All these factors are often good, but they can also engender complacent discussions and the lack of critical, disruptive argu-ments, and thus lead to flawed outcomes. No group is immune from groupthink. Recognizing Groupthink

Janis called out eight warning signs, organized under three types, that can help identify groupthink. Type I: Group overestimations of itself:

1. Illusions of invulnerability. Members are inordinately optimis-tic, ignore obvious dangers and take unwarranted risks.

2. Illusions of superior morality. Members exaggerate the positive ethical consequences of their actions and downplay the negative ones.

Type II: Closed-mindedness:

3. Rationalization. Members explain away and discredit warning

signs that contradict the groups conclusions.

4. Stereotyping. Members reject those opposed to the group by char-acterizing them as ignorant, mis-guided, prejudiced, spiteful or malicious.

Type III: Pressures toward uniformity:

5. Self-censorship. Members reject dissenting views that run counter to the group consensus.

6. Illusions of unanimity. Members falsely assume complete agreement and count silence as consent.

7. Pressure to conform. Members coerce other members to support the groups consensus with veiled threats of implied disloyalty.

8. Mind guards. Members appoint themselves to police the group and purge it from adverse information and dissenting views.

Antidotes to Groupthink Poison

The key for resisting groupthink,


The implications for CEOs are direct: More groupthink inside groups and more conflict between groups.


Janis argued, is attentive decision-mak-ing. What this means in practice is trying to make the group aware of problems with the consensus and offer alternatives. To do this, someone in the group has to be crit-ical. Encouraging critical thinking is not easy, but it is possible. (See sidebar at left.)

In the Real World

Consider this example from China, which needs leaders who can overcome groupthink. Li Yuanchao, head of the rul-ing partys (CPCs) Organization Depart-ment with the mission to recruit, train and promote first-rate officials, singles out for criticism those who are benign and

uncontentious. So in addition to requir-ing positive traits for leaders, Li prioritizes the fight against groupthink.

Because groupthink is so insidious, comfortable and prevalent, it is a constant challenge for CEOs. This is especially so in the age of the Internet. Only the proactive administration of psycho-social antidotes can counteract the poison of groupthink.

Robert Lawrence Kuhn is an international corporate strategist and investment banker who advises multinational corporations on doing business in China. He is senior advisor, office of the chairman, Ernst & Young. A longtime counselor to Chinas leaders, he is the author of How Chinas Leaders Think: The Inside Story of Chinas Past, Current and Future Lead-ers and The Man Who Changed China: The Life & Legacy of Jiang Zemin.

uncommon wisdom > beware groups

Because groupthink is so insidious, comfortable and prevalent, it is a constant challenge for CEOs. This is especially so in the age of the Internet.


Reward those who are shown to

speak truth (with hindsight).

Do not assume that silence

means agreement.

Leaders should avoid giving an

early opinion.

Do not come to early consensus.

Take time to think through

major issues.

Rotate job positions.

Cast jobs against type to disrupt

an old boy network.

When the stereotypical yes-man

emerges, expose him/her.

Assign several independent groups to

work on the same issue.

Divide the group into subgroups and

have each critique the others ideas.

Develop competition among

subgroups.

Invite new members into the group

(preferably people not well known).

Encourage members to discuss the

groups ideas with trusted people

outside of the group (respecting

confidentiality).

Test new ideas on other, independent

groups.

Run a pilot program (where

applicable).

Encourage open discussion.

Examine all alternatives.

Bring in new perspectives.

Develop a culture where dissent is

appreciated.

Dissent should not be misinterpreted

as disrespect for the groups

consensus.

Designate a Devils Advocate

by assigning someone to ask hard

questions.

Rotate the groups Devils Advocate

every meeting.

Ask each member, in some sequence,

to play the role of critical evaluator.

Teach the art of adversarial

conversation.

Force members to present

contradicting views (objections

or doubts).

Focus on sensitive subjects by

revisiting tough decisions.

Challenge assumptions and arguments

even after decisions are made.

Appreciate the benefits of bickering.

Reward creative deviance (even if

not successful).

Reward critical thinking.

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Thirty Ways to Resist Groupthink



With momentum building around the marketing potential of Twitter, Facebook and Google+, how can companies leverage the mediumhow personally involved should business leaders be? by Dale Buss

CEOs and SOCial MEdia

key takeaways

1. Social media isnt going awayCEOs need to decide how to handle the medium.

2. ROI numbers and other data mostly arent available. CEOs must rely on other criteria.

3. Personal involvement is a separate consideration from corporate involvement.

4. Despite the challenges, an increasing number of CEOs are opting to engage in some form of social media.

cover story

2529_Cover_Feature.indd 3 8/23/11 9:27 PM

As chief of Hyundai in the American market, John Krafcik has driven the com-pany right into the social media oceanwithout taking the plunge himself. The president of Hyundai USA spends up to an hour and a half each day monitor-ing Twitter and Facebook feeds about the company, its brands and products, but Krafcik does so under an alias and doesnt contribute to the social stream of consciousness.

Right now, social media is a wonder-ful opportunity for me to listen and really feel the pulse of whats going on, Kraf-cik says. But if I get out there in it myself, I want to make sure I can be committed to stay and deliver. And the time constraints are considerable.

Krafciks dilemma is common to CEOs these days. First, chiefs often figure cru-cially in whether their companies will

heavily engage in the fast-changing and often arcane world of social media mar-keting and communications, weighing the unprecedented hype surrounding the genre with their memories of the last great Promising Technology. And sec-ond, more and more company heads are deciding whether to tweet under their own names, post leader-worthy thoughts on Facebook or Google+, pal around on LinkedIn, appear in a video destined for YouTube or blog under their own moni-kers on corporate web sites.

Such decisions face heads of more B2B companies as well as consumer-fac-ing enterprises. BAE Systems Inc., for instance, is the $18-billion U.S.-based unit of the giant British defense and secu-rity contractor, and CEO Linda Hudson blessed her communications departments full-on launch into social media last year as a way to engage with a community of thousands each day, including the users

of our products. She did so even though information in her business often is heav-ily restricted or nuanced, and a poor choice of words or a misplaced decimal can hurt shareholders or even endanger customers.

Social media involvement is deepening quickly at most companies. So far, social media draws only about 2 percent of mar-keting expenditures at Atrion Networking Corp. even though the $60-million, War-wick, R.I.-based company is immersed in the infotech world. But Ford already is spending about 25 percent of its mammoth marketing budget to leverage its early auto-industry leadership in social media. And the overall trend is clear: Social media investments are gaining an average of 5 percent this year at the 600 member companies of the CMO Council, the most of any type of marketing, while surveyed

companies typically are cutting at least 5 percent from print, television and outdoor advertising budgets.

This is happening even with most CEOs feeling that the answers they want arent keeping pace with the ques-tions being kicked up by the rise of social media, including concerns about cor-porate transparency, digital security and brand vulnerability. One of the big-gest criteria for their decisions is return on investment. The typically tiny finan-cial outlays required to participatea 20-something marketing staffer or two to field tweets and post tactically on social media networks, for examplecan pay off hugely but also engender outsized PR disasters.

Many CEOs remain frustrated because practically no one has been able to quan-tify returns yet. There is not [a single]

cover story

Social media is an extension of social behavior, and social discourse is hugely important in business. That means the ROI is the highest in the world.


61% Social media and online communities39% Internet media channels39% Mobile relationship marketing36% Online content delivery25% User-generated content and media24% Mobile Web Site24% Mobile app development22% Experiential events18% Place or location-based advertising17% Point-of-sale messaging14% Online video segment syndication13% Affinity network group formation

What new or alternative marketing or media channels are you evaluating?*

*More than 600 marketing executive survey participants selected all options that applied. Source: CMO Council, The 2011 State of Marketing

61% Social media and online communities39% Internet media channels39% Mobile relationship marketing36% Online content delivery25% User-generated content and media24% Mobile Web site24% Mobile app development22% Experiential events18% Place or location-based advertising17% Point-of-sale messaging14% Online video segment syndication13% Affinity network group formation

What new or alternative marketing or media channels are you evaluating?*

*More than 600 marketing executive survey participants selected all options that applied. *Source: CMO Council, The 2011 State of Marketing



way to answer the ROI question, says Jason Breed, the social-media practice lead for Accen-ture. But David Sable insists the returns are immeasurably great. Social media is an exten-sion of social behavior, and social discourse is hugely important in business, says the CEO of Young & Rubicam, one of the worlds largest marketing agencies. That means the ROI is the highest in the world.

So at this point, many companies are wad-ing into the social-media milieu with CEOs rely-ing only on anecdotal evidence and even gut feel. LinkedIn provided the high-quality candi-dates that led to the last three high-level hires by Atrion, for example. Language Line has tri-pled sales to $300 million over the last two years in large part by surrounding its over-the-phone interpretation services, for 911 dispatchers and others, with social media marketing and com-munications. Language is a social activity, says Louis Provenzano, CEO of the privately

held concern based in Monterey, Calif., so to us its very obvious that we need to be active in the growth of social media.

Based in Paramus, N.J., Megabus.com is the largest unit of Coach USA, a unit of U.K.s Stagecoach Group. Megabus has grown to a $120-million company in just five years by pro-viding Internet purchase of low fares on inter-city travel among 60 North American cities. And social media is in large part responsible for its takeoff, as company spending has risen to nearly $100,000 this year from about $20,000 the first year.

Its one of our largest demographics that tends to be involved in social media, of course, says Dale Moser, CEO of Coach USA. We use it to get our brand out there and for any promo-tions, announcements of new service areasanything new and different. And then we watch how it spreads compared with what wed have

Social Voices

Heres how eight CEOs personally feel aboutand addresssocial media:

STEVE HANNAH The Onion Chicago

Does he or doesnt he? The ex-newspaper editor hankers to contribute to The Onions vast brand following on social networks; Its the way our audience communicates with each other, he said. But he doesnt.

Why? Being of Irish extraction, Hannah quips, I cant even say hello in 140 characters. Besides, I dont believe I have anything particular to say. And Im awash in a sea of information all day long, anyway. I want to simplify my life... On a personal level, this is not the way my social circle and my friends do things.

TIM HEBERT Atrion Networking Warwick, R.I.

Does he or doesnt he? Spending about 30 minutes a day personal-ly engaging in SM, Hebert focuses on LinkedIn because thats where he can in-teract most with clients. The company ranks all of its clients on their strategic importance, and Herbert isnt surprised to find that those clients who friend him on Facebook tend to be the most important.

Why? With 70 percent of employees toiling away from headquarters, net-working internally as well as externally is literally existential for Atrion. Hebert wants to be there. People like the fact that Im very transparently the same person on Facebook and in person, he says. But I dont share information thats too personal.

LINDA HUDSON BAE Systems Arlington, Va.

Does she or doesnt she? Hudson began blogging internally for 40,000-plus employees, and after several months acknowledged the practice as invaluable. She has also established a Twitter account. It is my intent to engage on Twitter to comment on current events and offer my thoughts on im-portant topics. But Hudson hasnt started to do so yet.

Why? While I think its important that BAE Systems be represented in so-cial discourse, Hudson says, I dont think that voice necessarily needs to come from the top. Among other reasons: Her time is limited and valuable.

JOEL MANBY

Herschend Family Entertainment Atlanta

Does he or doesnt he? The company owns amusement parks, includ-ing Silver Dollar City in Missouri and Dollywood in Tennessee, and Manby was the CEO featured in the second-ever episode of CBSs Undercover Boss. But he refrains from personal SM accounts for now.

Why? Manby would rather defer issues and attention to individual park managers and Herschends other executives. Most things brought by custom-ers who might approach me via social media should be handled at other lev-els, he says. And I dont know if I could keep up with blogging.

We use it to get our brand out there and for any promotions, announcements of new service areas and then we watch how it spreads compared with what wed have to pay for print or radio.


Social Voices Continued.

How CEOs personally feel aboutand addresssocial media:

MILES NADAL MDC Partners New York

Does he or doesnt he? The shoemakers children cant go barefoot, says the head of a media holding company that specializes in SM. So, yesNadal tweets three favorite quotes a day and re-tweets articles he likes. But he doesnt have a Facebook page or blog.

Why? He likes Twitter because it brings me closer to our talent pool. But he doesnt do Facebook because it would have to be too personal, and Nadal would have security concerns. As a person running a public company, the most important persona I have is my public persona.

LOUIS PROVENZANO Language Line Services Monterey, Calif.

Does he or doesnt he? His goal is five SM transactions a day, sev-en days a week. Hundreds of clients and potential clientssheriffs, airport di-rectors and others who must deal with limited-English constituenciesinteract with Provenzano.

Why? If you can take a hot topic like immigration, and humanize it with an incident, and ask what people would do, its an excellent way of spreading our mission, he says. Besides, If Im waiting for my luggage, thats enough time to make a statement about something that goes out an all my social-media feeds at once.

DAVID SABLE Young & Rubicam New York

Does he or doesnt he? Sable now blogs a memo of observations and quotes that hes sent out every Monday for 20 years. It has become an institu-tion, he says, and lately draws 10,000 unique visitors a week, a 70-percent in-crease over two years ago.

Why? A CEOs job is to communicateto be the central communicator of and for the company, he says. Im just careful about what I say, and only what I want to get repeated. That way, its no more or less dangerous for a CEO than for any citizen.

JULIE SMOLYANSKY Lifeway Foods Chicago

Does she or doesnt she? As head of a better-for-you foods brand, Smolyansky figures pioneering consumers expect to see her on social media as well as the brand. And, in fact, her personal Facebook page is her corporate oneand vice versa. She also tweets her opinions and her finishes in 5K races.

Why? Why not? Security concerns about social media are the biggest bunch of crap, Smolyanksy says. Of course you have to be smart about it: If I was having a high-level meeting, I wouldnt be tweeting that information unless I wanted the world to know.


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to pay for print or radio to get the same kinds of demographics. That would be hundreds of thousands of dollars each time, compared with very little for social media.

Even huge, long-established companies without obvious connections to the social media zeitgeist also have gone all-in. They include Best Buy, where CEO Brian Dunn has become a world-leading apostle of social-media market-ing. Best Buys message has to be where people are, and today, that means being on social net-works, says the chief of the Minneapolis-based consumer-electronics and appliances retailer.

Otherwise, a company risks not being in the conversation at all. Over time, I believe that can be fatal to a business.

But does that mean CEOs must be person-ally involved in the conversation? That deci-sion can make the questions surrounding social media even more acute. Dunns unequivo-cal answer is, absolutely: His personal Twitter account has 5,000 followers. Jeff Joerres, CEO of the biggest private employer in the world, Glen-dale, Wis.-based Manpower, also tweets about important global labor-market news and has a personal Facebook page that has picked up more than 1,000 friendsincluding 700 Man-power recruiters around the world.

I was at the World Economic Forum in Davos, Switzerland, earlier this year, Joerres recalls, and while Im speaking about the short-age of talent in China, I also have a tweet going out with my 140-character observation about the latest U.S. unemployment-claims report. And look at those who followed it: newspapers, mag-azines, university people and human resources executives from all over. Many of them end up tweeting back or e-mailing me.

Even banal social-media missives by CEOs can be effective attention-getters, conversation starters and brand builders, especially if the chief is communicating with a restricted group, maintains Eric Darr, executive vice president of the Harrisburg (Pa.) University of Science and Technology. For those minutes, I feel like I have

If Im waiting for my luggage, thats enough time to make a statement about something that goes out on all my social-media feeds at once.



Speak in the first person.

Respect copyright and fair use laws.

Safeguard confidential and proprietary

information.

Protect company clients, business partners

and suppliers.

Respect your audience and your coworkers.

Add value.

Dont pick fights.

Be the first to respond to your own mistakes.

Adopt a warm, open and approachable tone.

Hundreds of IBMers (though not CEO Sam Palmisa-no) have blogs. In 2005, IBM published a set of rules to guide for IBMers who wanted to blog. The guide-lines offer good general guidance for anyoneinclud-ing CEOsthinking about starting a blog.

Blog Guidelinesthe CEOs attention, he says. It makes you feel special, like hav-ing the CEOs cell phone number.But many other CEOs remain ambivalent about devoting their

own precious resources to social mediadaunted by the time commitment, heeding security experts warnings about expos-ing their thoughts and movements digitally, wary of conced-ing any of the insularity that gives them some of their authority, concerned about making a costly mistake in some sort of social media forum, or just dubious about what they consider a fad that still has to prove itself. (See Should CEOs Have Personal Blogs? p. 52.)

BAEs Hudson, for instance, has launched an internal blog but so far has refrained from using her own professional account on Twitter. Im not ready to travel down that road until Im con-vinced that I have the time, and processes in place, to use the tool responsibly and effectively for the betterment of my busi-ness, she says. And once you initiate engagement on social media, expectations are high about recurring contentand it takes time.

For Gary Hirshberg, vanguard of the organic-food movement and a hero to Millennials as founder of Stonyfield Farm, it seems that blogging and tweeting should come naturally. But they dont to the CE-Yo of the Londonderry, N.H.-based yogurt company. Much of his misgiving is generational, believes the 49-year-old. He still believes in personal conversations and likes to go out and make about 150 speeches a year before audiences of real peo-ple. And, Hirshberg says, I can never seem to get the time: He has a blog, but he only makes about 10 entries a year.

But lately, social media has been growing even on Hirshberg. For fun, he filmed a video about the wonders of organics that was paired as a YouTube rap-off against another organic-company CEO, Seth Goldman of Honest Tea, and has picked up more than 72,000 views. Hes willing to use social media to parry opposing views on industry issues. And increasingly, Hirshberg allows staffers to excerpt his speeches and put them on his Facebook page.

I have to admit that its unbelievably effective, Hirshberg says. I get more feedback from my Facebook page than from anything else Im doing.


Sales Force EffectivenessWhat works and what doesnt. by Howard Stevens and Geoffrey James

Raising


Conventional wisdom says that the Internet is making sales jobs obsolete, that those sales teams who remain consist primarily of extroverted go-getters and that selling is an art thats only measured at the end of each fiscal quarter. Unfortunately, con-ventional wisdom is dead wrong. scientific research into what actually worksand what doesntinside todays most effective selling environments reveals that the conventional wisdom about selling is not just incorrect, but a recipe for failure. here are the four most important things that ceos need to know about success-ful selling into todays unconventional business world.

3236_salesforce.indd 2 8/23/11 9:34 PM


key takeaways

1. While many say the Internet is eliminating the need for a sales force, hard data counters that claim.

2. 39 percent of a companys success at winning customer loyalty depends on the effectiveness of salespeople.

3. The 80-20 rule of sales is a myth; in most organizations, top 20 percent producers generate just 52 percent of all sales revenue.

4. Reassigning or replacing the bottom 20 percent performers is more effective than attempting to teach the top 20 producers techniques to the rest of the team.

sales effectiveness

Fact 1: The Internet makes sales professionals more important. There is no question that the Internet has changed the way companies interact with customers. Custom-ers can now get product information at the same time as the sales rep, not just about the sales reps offerings, but the offer-

ings of all of the reps competitors. As a result, customers can now configure and order products and manage the shipment of those products across the web without the need of a sales professional.

Conventional wisdom says that this power, in the hands of the customer, should make sales professionals less important. But that turns out not to be the case. Research into how companies are deploying salespeople suggests that the Internet has created a net increase in the

demand for sales professionals, but with this proviso: the indi-viduals who thrive in todays environment must possess a dif-ferent and more extensive skill set.

Take, for example, the travel industry, which once provided employment for tens of thousands of travel agents whose main responsibility was booking airline tickets. Today, of course, most people make their plane reservations directly online, eliminating the need for professional help. However, despite the commoditization of its key product, demand for travel agents remains high, ac

sept/oct 2011 issue

Documents

group members

term groupthink

groups conclusions

group loyalty

group consensus

group overestimations

internetenhanced groupthink

social media cover