Executive Insight

CEOs Embrace a More Connected Culture

A new IBM study of more than 1,700 Chief Executive Officers from 64 countries and 18 industries worldwide reveals that CEOs are changing the nature of work by adding a powerful dose of openness, transparency and employee empowerment to the command-and-control ethos that has characterized the modern corporation for more than a century.

The advantages of the fast-moving trend are clear. According to the IBM CEO study, companies that outperform their peers are 30 percent more likely to identify openness – often characterized by a greater use of social media as a key enabler of collaboration and innovation – as a key influence on their organization.  Outperformers are embracing new models of working that tap into the collective intelligence of an organization and its networks to devise new ideas and solutions for increased profitability and growth.

To forge closer connections with customers, partners and a new generation of employees in the future, CEOs will shift their focus from using e-mail and the phone as primary communication vehicles to using social networks as a new path for direct engagement. Today, only 16 percent of CEOs are using social business platforms to connect with customers, but that number is poised to spike to 57 percent within the next three to five years. While social media is the least utilized of all customer interaction methods today, it stands to become the number two organizational engagement method within the next five years, a close second to face-to-face interactions.

Coming after decades of top-down control, the shift has substantial ramifications – not just for the CEOs themselves – but for their organizations, managers, and employees, as well as for universities and business schools, and information technology suppliers. IBM’s research finds that technology is viewed as a powerful tool to recast organizational structures. More than half of CEOs (53 percent) are planning to use technology to facilitate greater partnering and collaboration with outside organizations, while 52 percent are shifting their attention to promoting great internal collaboration.

Greater openness is not without risks. Openness increases vulnerability. The Internet – especially through social networks – can provide a worldwide stage to any employee interaction, positive or negative. For organizations to operate effectively in this environment, employees must internalize and embody the organizations values and mission.  Thus, organizations must equip employees with a set of guiding principles that they can use to empower everyday decision making. Championing collaborative innovation is not something CEOs are delegating to their HR leaders. According to the study findings, the business executives are interested in leading by example.

By the Numbers

CEOs regard interpersonal skills of collaboration (75 percent), communication (67 percent), creativity (61 percent) and flexibility (61 percent) as key drivers of employee success to operate in a more complex, interconnected environment.

To build its next-generation workforce, organizations have to actively recruit and hire employees who excel at working in open, team-based environments.  At the same time, leaders must build and support practices to help employees thrive, such as encouraging the development of unconventional teams, promoting experiential learning techniques and empowering the use of high-value employee networks.

The trend toward greater collaboration extends beyond the corporation to external partnering relationships. Partnering is now at an all-time high. In 2008, slightly more than half of the CEOs IBM interviewed planned to partner extensively. Now, more than two-thirds intend to do so.

Other Findings

The IBM study found that a majority (71 percent) of global CEOs regard technology as the number one factor to impact an organization’s future over the next three years – considered to be a bigger change agent than shifting economic and market conditions.

Across all aspects of their organization – from financials to competitors to operations – CEOs are most focused on gaining deeper insights about their customers. Seven out of every ten CEOs are making significant investments in their organizations’ ability to draw meaningful customer insights from available data.

Given the data explosion most organizations are facing, CEOs recognize the need for more sophisticated business analytics to mine the data being tracked online, on mobile phones and social media sites. The traditional approach to understanding customers better has been to consolidate and analyze transactions and activities from across the entire organization. However, to remain relevant, CEOs must piece together a more holistic view of the customer based on how he or she engages the rest of the world, not just their organization. The ability to drive value from data is strongly correlated with performance. Outperforming organizations are twice as good as underperformers at accessing and drawing insights from data. Outperformers are also 84 percent better at translating those insights into real action.

Source: IBM

Selected Charts: Flickr

 

CEO and Company Reputation Inextricably Linked

A full two-thirds (66 percent) of consumers say that their perceptions of CEOs affect their opinions of company reputations. Executives, like consumers, also do not overlook the importance of a leader’s reputation – they attribute nearly one-half (49 percent) of a company’s overall reputation to the CEO’s reputation. Executive leadership is critical to burnishing the overall reputation of organizations today, particularly when it is estimated that a large 60 percent of a company’s market value is attributed to its reputation.

This second installment of Weber Shandwick’s global research, The Company behind the Brand: In Reputation We Trust – CEO Spotlight, explores the importance of executive leadership and communications to helping reverse the tides of waning trust in companies. The first segment of the study, released in early 2012, reported on the growing interdependence of product brand and corporate reputation in this new see-thru, nowhere-to-hide global marketplace. The findings alerted marketing and communications executives to a tectonic shift in communicating the voice of the “enterprise” to key stakeholders. The survey among 1,950 consumers and executives in two developed (U.S. and U.K.) and two developing markets (China and Brazil) was conducted by KRC Research in late 2011.

“Gone are the days when purchases were made solely on product attributes. Today’s consumer is savvy, well-informed and privy to a plethora of purchase options. Decisions are now increasingly based on additional factors such as the company behind the brand, what the company stands for and even the standing of its senior leaders,” said Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick is quoted in its release.

Executive Leadership is on Consumers’ Radar Screens Worldwide

Nearly three in 10 consumers (28 percent) report that they regularly or frequently talk about company leaders with others. When consumers are asked what influences their perception of companies, approximately six in 10 (59 percent) say they are influenced by what top leaders communicate. Corporate leadership communications are important across the globe, but to an even greater extent in emerging markets. Nearly two-thirds of Chinese consumers (64 percent) and nearly three-quarters of Brazilian consumers (72 percent) rely on executive communications when learning more about a company.

Respect for Leadership Differs Widely in Developed vs. Emerging Markets

Respect for corporate leaders – CEOs and other corporate leaders – has taken an especially large hit in developed markets – 72 percent of U.S. and 71 percent of U.K. consumers have lost respect in the past few years. In emerging markets, Chinese consumers are evenly split on their changing opinions of corporate leadership (35 percent lost respect vs. 38 percent who increased respect). Brazilian consumers are more likely to have increased their respect for top executives than decreased their respect (33 percent vs. 21 percent, respectively).

As seen in this research, CEO and company reputation are inextricably linked – corporate reputation is not isolated from the public views of a company’s top leadership. Together, company and CEO reputation make a solid contribution to a firm’s market value.

Read the Executive Summary

Source: Weber Shandwick

The Connected Consumer Era is No Longer on the Way; It Has Arrived.

A new IBM study of the media and entertainment market reveals that as consumers adopt an increasing number of digital devices, four distinct new "digital personalities" are emerging. This shift is compelling companies to adopt more innovative business models that deliver personalized experiences.

The "Beyond Digital" study paints a portrait of a rapidly changing audience that is adopting a wide range of digital devices at a dizzying pace. And, contrary to popular belief, most are not college students. For example, sixty-five percent of respondents aged 55 to 64 report surfing the Web and texting with friends while watching TV. Of those over age 65 watching TV, 49 percent surf the Web and 30 percent are texting. Eighty-two percent of surveyed global consumers aged 18 to 64 are embracing connected digital devices.

Moreover, consumers in China and the U.S. are moving away from traditional forms of media, with more than 50 percent using online sources for breaking news.

The New Personalities
Today's connected consumers demand instant access to personalized content on their own terms. With the growth of digital devices, one-way communication and distribution of content is no longer feasible. According to the IBM study, most users fall into one of four emerging personality categories:

Efficiency Experts

With 41 percent in this category, these respondents use digital devices and services to simplify day-to-day activities. Efficiency experts send emails rather than letters, use Facebook to communicate with others, access the Internet via mobile phones, and shop online.

Content Kings

Are generally male consumers, who frequently play online games, download movies and music, and watch TV online. This audience represents 9 percent of the global sample.

Social Butterflies

Place emphasis on social interaction – they require instant access to friends, regardless of time or place. Fifteen percent of consumers surveyed reported they frequently maintain and update social networking sites, add labels or tags to online photos, and view videos from other users.

Connected Maestros

35 percent of those surveyed take a more advanced approach to media consumption by using mobile devices and Smartphone applications to access games, music, and video or to check news, weather, sports, etc.

According to the IBM study, media and entertainment companies' payment infrastructures need to be flexible and scalable to allow a variety of innovative pricing approaches to attract consumers with different preferences to their content. The need for payment option flexibility, even for the same set of consumers, is apparent by looking at those most active in adopting new devices. This group's preferred mode of payment to watch a movie on a website is by viewing advertising that is included with the movie (39 percent of this segment chose this option), while they prefer to see movies on a tablet by purchasing a subscription (chosen by 36 percent). But to watch movies on a smart phone, they prefer to pay per use (the payment choice of 36 percent).

IBM surveyed 3,800 consumers in six countries – China, France, Germany, Japan, the United Kingdom and the United States for this study, and also met with global representatives in broadcasting, publishing, as well as media service agencies, and telecommunication providers, to evaluate digital consumption behaviors.

Read the study

Source: IBM

Finding Answers in the Global Market - Entrepreneurship Rather Than Aid for Africa

Realities, myths, lessons learned and changing the narrative.

In a powerful and pragmatic speech at the NYU Development Research Institute, entrepreneur Andrew Rugasira asks why, if the private sector is the engine for growth, do economic development discussions on Africa so rarely include the private sector.

He argues that the only way to bring about sustaining growth and development is not through handouts, charity and sympathy, but through hard work, creativity and innovation, and creating an environment where entrepreneurship flourishes. He comments  that it’s the same thing that happened in the US, and says he often wonders why, when it comes to Africa, a whole different set of solutions are promoted: “You don’t really hear people talking about models for entrepreneurship and models for business solutions to these big problems”.

Rugasira describes what happened as Good African Coffee, the business he founded in Uganda’s Rwenzori mountains, began to take off. As farmers began to produce higher quality coffee and see higher prices for their crops:

Something really extraordinary began to happen.  The values that we don’t really hear about in a lot of these development reports began to manifest: entrepreneurship, business exposure, dignity, esteem, the pride in producing a product that they knew was going into a market…

Find Andrew’s full speech and other video from DRI’s conference here.

Source: NYU Development Research Institute

 

What Keeps CEOs Up At Night? The Conference Board Thinks It Knows

According to the 776 CEO respondents to the 2012 edition of The Conference Board CEO Challenge survey, the race to innovate, the war for talent, “black swans” and bad debts, and the hunt for new markets—all driven by an increasing drumbeat of regulation and oversight—define today’s global business environment. When this combination of risk, regulation, uncertainty, and complexity is mixed with the need for speed and an overwhelming flow of information and data (not all of it reliable), it makes for risky business and an intense set of unique leadership challenges for CEOs in every region of the world.

What Keeps CEOs Up At Night?

The five top challenges—Innovation, Human Capital, Global Political/Economic Risk, Government Regulation, and Global Expansion—show a balance between concerns related to the macro business environment (of which business leaders have limited or no control individually) and company-specific challenges that are driven by management action and require a well-executed business strategy.

Since 1999, The Conference Board CEO Challenge survey has asked CEOs, presidents, and chairmen from across the globe to identify their most critical challenges. This year’s survey features a somewhat revised set of 10 overall challenges and a more in-depth strategy section to better reflect today’s business environment. Follow-up interviews with CEOs across the globe enhanced our qualitative understanding of the issues.

Inside the Foxconn iPad Factory

An interesting and balanced report from American Public Media reporter, Rob Schmitz:

Read Schmitz’s notebook from his visit.

More about Apple in China and Foxconn from American Public Media’s special project portal The Apple Economy, including the debunking of Mike Daisey’s account of Chinese factory conditions that initially caused such a furor.

Women Board Representation Increases Slightly Worldwide

GMI Ratings released today, International Women’s Day, its annual report on Women on Boards. Based on data on over 4,300 companies in 45 countries, the results show incrementally small improvements in the proportion of board seats held by women. For example:

• 10.5 percent of the directors in are now women, a 0.7 percentage point increase from last year
• At the same time, the percentage of companies with no female directors at all has fallen below 40 percent for the first time, to 39.8 percent (a 2 percentage point decrease since last year)
• The percentage of companies with at least three women has risen by 1.3 percentage points, to just under one‐tenth (9.8 percent) of companies worldwide

As the report says, however, while the aggregate statistics show small improvements, they mask significant differences between individual countries and between industrialized economies and emerging markets. For example, when the world’s industrialized economies are viewed as a group, 11.1 percent of directors are women, 63.3 percent of companies have at least one woman on the board, and 10.5 percent of companies have three or more female directors. For emerging markets as a group, only 7.2 percent of directors are women, 44.3 percent of companies have at least one woman on the board, and 6.3 percent of companies have at least three female directors. What’s more, large national variations exist within market blocks. For example, Norway’s boards have 36.3 percent female representation, while Italy has only 4.5 percent. Japan has only 1.1 percent, but Hong Kong has 9.4 percent.

In its Release, GMI quotes Director of Research Kimberly Gladman, PhD, one of the authors of the report, “This heterogeneity reflects the wide range of approaches countries are taking with respect to board diversity. In the past year, France has seen the largest increase in female directors, due to a legal requirement. Australia has also made significant gains, in response to a corporate governance code change and a mentoring program by the Australian Institute of Company Directors. In the US, progress is slow, but many investors are pressing for change.”

The full report includes detailed studies of the statistics in 10 individual countries.

Download the report.

Source: GMI Ratings

Looking Ahead on CEO Succession Planning

A lot has changed since Justus O’Brien and I wrote Examining the Impact of SEC Guidance Changes on CEO Succession Planning for The Conference Board in early 2010. CEO succession is more frequently a high priority on more board agendas. Institutional investor requests for disclosure of board succession process and practice more often reach agreement than proxy conflict; certainly more boards report that CEO succession plans are in place. All of which constitutes progress.

So what does 2012 hold for boards and CEO succession? Here are my predictions:

1. More boards will more definitively take responsibility for CEO succession planning, relying less on management to steer the process;
2. Boards will increase their process capability, putting in place those key elements that make for a robust and effective process and training designated directors accordingly;
3. Disclosure will increasingly become more process-descriptive than boilerplate, and investors will find this helpful and reassuring; where companies are reluctant or passive, investors will press the point often publicly;
4. More testy conversations will happen between boards and sitting CEOs on transition intentions and timing;
5. Shareholder activists will increasingly leverage succession planning inadequacies to advance their agenda.

First published in Laurel Hill’s The Advisor, Volume 8; March 2012, together with predictions and expectations for Proxy Season 2012 from:

Francis H. Byrd, Senior Vice President, Corporate Governance, Risk Practice Leader at Laurel Hill Advisory Group;

Douglas Chia, Assistant General Counsel & Corporate Secretary at Johnson & Johnson;

Robin A. Ferracone, Executive Chair of Farient Advisors, LLC;

Brian Foley, Managing Director of Brian Foley & Company, Inc;

Philip Goldstein, Partner, Bulldog Investors;

Suzanne Hopgood, President & CEO, The Hopgood Group, LLC;

James McRitchie, Publisher, CorpGov.net;

James (Jim) O’Bannon, Partner, Jones Day;

Karl Wagner, Assistant Secretary & Director of Stockholder Services, Merck & Co., Inc;

Paul Washington, Senior Vice President, Deputy General Counsel, Time Warner.

Topics include: executive pay and Say-on-Pay, corporate governance, shareholder activism, proxy access, CEO succession planning, the global economy, board responsiveness.

EU Considers Compulsory Gender Quotas for Boardrooms

The European Union could introduce mandatory quotas to improve the gender balance on boards, after the region’s companies have failed to make sufficient voluntary progress over the past 12 months.

A consultation on this legislative change has been opened by the European Commission as it would take more than 40 years to reach a “significant gender balance” – at least 40 per cent of both sexes – at the current rate of transformation.

Just one in seven, or 13.7 per cent, of board members at Europe's top firms are women – only a slight improvement on the 11.8 per cent in 2010, said the Commission.

“One year ago, I asked companies to voluntarily increase women’s presence on corporate boards,” said EU justice commissioner Viviane Reding. “However, I regret to see that despite our calls, self-regulation so far has not brought about satisfactory results.”

“I am not a great fan of quotas. However, I like the results they bring,” she continued. “I believe it is high time that Europe breaks the glass ceiling that continues to bar female talent from getting to the top in Europe's listed companies. I will work closely with the European Parliament and all member states to bring about change.”

Reding had called on employers to set a target of making 30 per cent of board members women by 2015, rising to 40 per cent by 2020. But so far only 24 firms have signed up to the voluntary pledge.

Norway has had binding quotas for a number of years, and has been joined more recently by Iceland, France, Spain, Italy and Belgium. The Netherlands is expected to introduce a quota law in 2012, while the proposal is under discussion in Austria.

However, legal experts have warned that a move towards an EU-wide law would encounter both resistance and a long legislative process.

A year ago, the Lord Davies report recommended that FTSE 100 companies should set their own targets for boosting the number of female directors and suggested a goal of 25 per cent by 2015 – up from the 2010 figure of 12.5 per cent. However, so far employers are not on schedule to meet this target and in October 2011 only 14.2 per cent of FTSE 100 board members were female.

Source: The Chartered Institute of Personnel and Development

The Future of Global Energy

The Pulitzer Prize–winning author and global energy expert Daniel Yergin sees rising demand from the East spurring innovation.

Yergin is the author of The Quest: Energy, Security, and the Remaking of the Modern World (Penguin, September 2011).McKinsey Publishing’s Rik Kirkland conducted the interview at the World Economic Forum, in Davos, in January 2012.

Source: McKinsey Quarterly