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HBR May-June 2017: Managing for the long-term

Harvard Business Review May-June 2017
Annotated table of contents

1. Adi Ignatius, Are we giving shareholders too much power?

Adi Ignatius, the editor in chief of HBR, introduces the spotlight section on the need to reconsider how we think about corporate leadership and governance, from taking as a given the primacy of shareholders’ interests to balancing all stakeholder interests.

Idea watch

2. HBR Team, How venture capitalists really assess a pitch

Detailed assessment of hundreds of video recordings of pitches highlights some expected and some unexpected regularities. Women, and those who display feminine traits, such as expressive demeanour or emotionality, are less likely to be taken seriously. Calm tends to be preferred over displays of passion. At the same time, trust beats competence, as honesty and straightforward communication are seen as indications of good character, an important consideration in this kind of long-term commitment. Finally, nodding and smiling in response to questions indicates a willingness to be coached, another trait prized by investors.

3. Scott Berinato, Sometimes, less innovation is better

Berinato interviews City University of London professor Paolo Aversa about his research, with colleagues, on innovation and success in Formula 1 racing over 30 years. They have found that under conditions of turbulence innovation has a smaller chance of success. They recommend waiting instead for more stable conditions before trying to answer a competitive challenge through innovation. Moreover, understanding change and turbulence in terms of magnitude, frequency and predictability could be useful for assessing the conditions for innovation in any industry and across portfolios of products.

4. Joseph Hooley, State Street’s CEO on creating employment for at-risk youth

Joseph Hooley describes here an intervention to support the education and employability of urban youths. In Boston, where State Street has its headquarters, the company partnered with five charitable organizations that each addresses a particular need: teaching skills to school leavers, applying to college, securing financial support to attend college and later finding a job. The partnership helps a youth accessing any one of these charities to become eligible for support by all the others, ensuring smooth hand-over and continuity of support across the different phases of a youth’s trajectory from high school to secure employment. Two years into the program, Hooley takes stocks of challenges and successes. State Street has committed to scale up the initiative across a number of US cities where it has significant operations.

Spotlight: Managing for the long term

5. Joseph L. Bower and Lynn S. Paine, The error at the heart of corporate leadership

Harvard Business School professors Bower and Paine assess the development over time of an influential theory of corporate leadership, the agency-based model which posits that managers and boards have as their primary responsibility to satisfy the interests of owners, i.e. shareholders. Maximizing shareholder value, the veritable mantra of our times, is nonetheless a highly contestable interpretation of the law, which in fact calls on managers and boards to act as fiduciaries, not agents. The agency-based model has also led to short-termism and it has made good companies more vulnerable to predatory behaviour on the part of activist investors. Spelling out the flaws of this model, Bower and Paine also suggest an alternative conception of corporate governance, a company-centred model, which takes account of the interests of all stakeholders and the long-term interests of the enterprise.

6. Sarah Cliffe, The CEO view: Defending a good company from bad investors

Cliffe interviews former Allergan CEO David Pyott who was in charge of negotiations with activist investors Valeant Pharmaceuticals and Pershing Square Capital Management when they attempted to force the takeover of Allergan in April 2014. Mobilising long-term investors to increase their positions or to speak to the media turned out to be very difficult and Allergan was eventually sold to Actavis, a company with similar, growth oriented business model. That Allergan could rebuff the hostile bid at all is testament to its robust fundamentals and the commitment of all of its employees. Pyott also suggests that reductions in tax rates would make good companies less attractive to activist investors who seek to benefit from tax inversion (after take over much lower tax rates could apply due to company registration in tax havens, increasing short-term profits).

7. Sarah Cliffe, Directors must balance all interests

Barbara Hackman Franklin is a former US secretary of commerce and a corporate governance expert who has served on the boards of 14 public and four private companies. In conversation with Cliffe, she shares her reactions to the lead article in this section. There is ongoing tension in balancing the power and responsibilities of boards, CEOs and management, and shareholders: one side or another tends to enjoy dominance at different points in time. Hackman Franklin underlines the importance of involving boards in discussions of strategy in a systematic and comprehensive manner, of developing a comprehensive model for evaluating performance and determining executive pay, of having greater clarity about the appropriate balance of power between management and the board.

8. Dominic Barton, James Manyika, and Sarah Keohane Williamson, The data: where long-termism pays off

The authors have created a model for assessing the impact of short-term and long-term behaviours among 615 nonfinancial US companies from 2001 to 2014. The 167 companies classified as having a long-term orientation have showed consistent superior results across five performance measures – average company revenue, earnings, market capitalisation, profit, and job creation. Had all US companies taken such an approach, the authors estimate that asset values in the economy would be higher by $1 trillion; 5 million more jobs in the US would have been created, unlocking an additional $1 trillion in GDP.

Features

9. Elena Lytkina Botelho, Kim Rosenkoetter Power, Stephen Kincaid, and Dina Wang, What sets successful CEOs apart

Analyzing large data sets about ratings and performance of managers before and after being appointed as CEOs, the authors of this study have determined four general attributes that are consistently found among successful CEOs. These are decisiveness, engagement for impact, pro-active adaptation and reliable delivery. Botelho et al. describe these behaviours and give a variety of examples to elucidate subtle meanings and implications. For instance, they find that sometimes a bad decision is better than no decision; reliable delivery over time can be more convincing than star performance that is little understood and difficult to sustain or replicate; engagement for impact does not imply creating the illusion of democracy but it does require capacity to sustain and move past conflict; and dedicating 50% of CEO time to thinking about the long-term can enhance the capacity to prepare actively for and accept necessary change. All of these behaviours can be developed by executives with the dedication and commitment to practice over time.

10. Mark Byford, Michael D. Watkins and Lena Triantogiannis, Onboarding isn’t enough

Byford, Watkings and Triantogiannis define four levels of support for executives joining a new organization or taking on a role in a different function or market. They argue that it is more useful to think about a spectrum, from on-boarding, i.e. mere joining, to integration. While two thirds of organizations do offer a form of basic orientation, much greater benefits can be obtained through active assimilation and customized, accelerated integration, reducing the time for reaching full functionality for new executives by as much as a third and eliminating the risk of defection and failure. The article also provides a framework for assessing organizational practices at levels of depth in terms of integration, across five areas of work: operations, team leadership, alignment of stakeholders, engagement of culture, and definition of strategic intent.

11. Jennifer Petriglieri and Gianpiero Petriglieri, The talent curse

Petriglieri and Petriglieri describe a common paradox, a ‘curse’ that can afflict young, high potential employees. Having been described by leaders in the organization as exceptionally talented and effective, they may also identify with this idealised vision of themselves as very nearly perfect carriers of organisational values. As a result, they could come to feel a certain distance, even alienation from their work. They could become afraid of failure, shifting to defensive behaviours that undermine their performance or choosing to leave the organization. As well as defining the curse and offering a description of diagnostic signs of trouble, the authors also recommend three steps for taking back control and ownership of one’s sense of involvement with the work and the organization.

12. Robert D. Austin and Gary P. Pisano, Neurodiversity as a competitive advantage

Neurodiverse, or differently abled people, such as those affected by dyspraxia, dyslexia, ADHD, autism, or social anxiety disorders often have highly developed skills in terms of pattern recognition, memory or mathematics. They could be very productive employees in roles where these skills are important, but most companies have recruitment processes that screen out such candidates. Austin and Pisano argue that a growing number of prominent companies are taking steps to identify talented neuro-diverse candidates and are putting in place strategies to facilitate their integration and management in the workplace. The article describes some of the best practices in this emerging field, with examples from SAP, Hewlett Packard Enterprise (HPE), Microsoft and others, showing that greater sensitivity to neuro diversity can help sustain a culture where the individual needs of every employee can be more thoughtfully taken into account.

13. Martin Mocker and Jeanne W. Ross, The problem with product proliferation

Mocker and Ross surveyed 255 senior executives and studied in depth a few companies where the problem of product proliferation came to threaten the bottom line and even their survival. While praise for innovation is very common, the darker side of it in terms of confusion and complexity for customers and employees is often overlooked. The authors offer here a set of diagnostic questions to help spot such problems and several recommendations for reversing the effects of excessive innovation drawn from the experience of Phillips, Principal Financial Groups (which offers financial services to US veterans), the LEGO group and others. Three tactics in particular can help companies stay focused and streamline their offerings: focus on integration, not variety; inclusion of employees responsible for answering customer demands in innovation teams; and clear definition of core values to make sure they do guide innovation.

14. Leandro DalleMule and Thomas H. Davenport, What’s your data strategy

The choice of data strategy is influenced to a certain extent by industry conditions, such as the level of regulation and competition, favouring a defensive or an offensive approach. In each case different key objectives, core activities, data-management orientation (control versus flexibility) and enabling architecture (single source of truth and multiple versions of the truth) will apply. For instance, in heavily regulated industries, such as healthcare, a concern for defence, aiming to ensure data security and integrity will be reflected in activities such as optimizing data extraction, standardization, storage and access, ensuring control and the central role of a SSOT. In industries where competition is high, such as finance or consumer products, companies will benefit from more flexibility, with superior data analytics drawing on nuanced MVOTs. In practice, most companies need to develop an appropriate balance between offence and defence and the article offers a diagnostic set of questions to enable this process.

15. Irene Yuan Sun, The world’s next great manufacturing center

Yuan Sun argues that the increase in labour costs and other competitive pressures in China are now encouraging a veritable exodus of manufacturing operations towards cheaper destinations, such as Africa. As Chinese manufacturing becomes more complex, simpler processes tend to migrate to less developed locations, a ‘flying geese’ pattern that was seen previously across Asia. Despite drawbacks in terms of lack of physical and institutional infrastructure in many African countries, demand there for simple manufactured products is high and the labour is plentiful and cheap. Moreover, Chinese entrepreneurs, having experienced improvisation in China’s own transition from the planned economy, have proven resourceful and patient: their presence does encourage the development of supporting services and institutions over time. The case is made through fieldwork research and examples, such as ceramics and cardboard factories in Nigeria, medicines in Ethiopia, lathes and milling machines in Kenya.

16. Bart de Langhe, Stefano Puntoni, and Richard Larrick, Linear thinking in a nonlinear world

This is a timely primer in linear and non-linear relationships between variables that managers work with every day for instance in evaluating the impact on profits of various promotions, customer lifetime value, repayment of mortgages and other loans, the calculation of per unit profit, evaluations of investments and so on. Although they may appear linear, in fact such relationships change over time, falling into four categories: increasing gradually, then more steeply; decreasing gradually, then dropping quickly; climbing quickly, then tapering off; and falling sharply, then gradually. As well as illustrating these points in detail, the article proposes four steps for developing greater awareness of linear bias, the instinctive assumption that relationships between variables are linear. The authors recommend education and training; focus on outcomes, not indicators; discovery of the type of nonlinearity at work in a particular case; and mapping relationships between variables onto a graph to test assumptions.

17. Adi Ignatius interviews Sheryl Sandberg and Adam Grant, “Above all, acknowledge the pain”

This interview probes the personal experience and scholarly understanding of resilience as presented by Sandberg and Grant in their new book, Option B: Facing adversity, building resilience, and finding joy. The book is the result of a process of discovery and collaboration that started with bereavement, Sandberg’s sudden loss of her husband Dave Goldberg, but went on to encompass a larger set of issues regarding setbacks, losses, even tragedies, and their sensitive handling in personal and corporate contexts. Our resilience can be tested at any time, and our responses to adverse events can also help us develop resilience going forward. Post-traumatic growth is possible and humour, understanding, open discussion and practical support from friends and colleagues can play an important part. But resilience is not just a concept that helps us understand individual responses. In a corporate context too, failure is increasingly seen as acceptable and even necessary source of insight.

Experience

18. Francesca Gino, Bradley Staats, Jon Jachimowicz, Julia Lee, and Jochen Menges, Reclaim your commute

This article presents research that substantiates the effectiveness of five strategies for reducing the stress of commuting and increasing the likelihood of a productive working day. While they will work to a certain extent for everyone, each of us will favour and adapt those most congenial. Start by shifting your mind set, viewing commuting as an opportunity to transition between home and work. Use the commute to think pro-actively and plan the work tasks of the day. Focus on what you can control during the commute and create a ‘pocket of freedom’. Social activities, conversations can make time pass more quickly and pleasantly. Finally, it may be possible to reduce the time spent commuting to and from work by making different choices of accommodation and by working from home.

19. Stephen Nason, Joseph Salvacruz, and J.P. Stevenson, Case study: Competing against bling

This is a marketing case study of a European high-end, understated watch maker competing with other offerings that provide more visible satisfactions for signalling status in China. Will brand consistency or adaptability to the local market prevail?

20. Walter Frick, The other digital divide

Frick reviews four recent books about Silicon Valley entrepreneurs, their commercial successes, value choices and social impacts, wondering whether the tech world is isolating itself just when it most needs to engage.

21. Alison Beard, Life’s work interview with Alice Waters

Alice Waters established her Chez Panisse restaurant in Berkeley, California in 1971 thus providing the spark for a national movement towards organic, sustainably resourced food. Here she explains how her commitment to learning by doing, to the small-scale, the inclusiveness of all staff in decision-making and to long-term relationships shapes all aspects of the business.

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