As predictions of a nascent global economic recovery swirl, companies that survived the downturn face a new hurdle: positioning their pared-down operations to capitalize on an upturn. After all, the post-recovery world will be a very different place.
Shell shocked by a dramatic drop followed by nearly 18 months of turbulence, markets remains skittish. Consumer spending is on the rise, but still relatively reserved. And, at many companies, employee morale is still reeling from weathering drastic cost cutting and painful layoffs.
At a time when the rules of the game are changing and every advantage counts, CEOs participating in the 11th annual CEO2CEO Summit held at the New York Stock Exchange shared their views about adjusting to the changing realities of the global marketplace. “The good news is that corporate earnings are up because we’ve all gotten a lot leaner and meaner, ”Duncan Niederauer, CEO of the New York Stock Exchange, told business leaders. “The bad news is that I don’t know a single company that has more employees than it did 18months ago-and a consumer-led recovery is hard to imagine with the number of people who are out of work right now.”
Niederauer sketched his vision of a slow, moderate economic recovery shaped like the “Nike swoosh,” and predicted a robust first quarter. But he also expressed concern about the prospect of overregulation by policymakers reacting to the financial crisis. “I think that there’s a real risk of the government overreaching,” he says.
“We need to fight very hard to keep policymakers from having the pendulum swing so far that we’re federalizing the boardroom. I don’t think that’s good for America. I don’t think that’s good for our competitiveness. But most importantly, it’s not necessary.”
Several CEOs also expressed concern about the public’s perception of CEOs, which has seemingly eroded to the point where business leaders are viewed practically on par with criminals. Bob Nardelli, CEO of Cerberus Operating and Advisory Company, candidly noted that while some of the criticism being leveled at business leaders may be warranted, the change in sentiment is both out of line with reality and potentially damaging. “When you look at earnings restatements and abuses of perks-we probably brought some of it on ourselves,” he said. “Should we think about some things differently? Yes. Have we been as a group broadly brushed? I think the answer is yes. I haven’t found too many scoundrels in the CEO ranks.”
Nardelli urged CEOs to resist the impulse to withdraw and, instead, take a proactive stance to regain respect and trust. “We have to figure out a strategy collectively about how to reestablish that we’re the ones creating jobs and providing the dividends and economic growth for investors,” he said. “We have to take a position in the country where we’re helping to shape the future versus letting the future shape us.”
Some CEOs, however, expressed optimism that the issue of trust will fade when growth resumes. “In a downturn people are always looking for someone they can blame,” said Sohaib Abbasi, CEO of the data integration company Informatica. “There is a lot of negative press about CEOs today, much in the same way that business leaders were hailed as heroes back when the economy was doing well. We are going through this phase but when the recovery takes hold, this phase will pass.”
CEO Duncan Niederauer welcomed business leaders to the CEO Summit
Strategies for Recovery
The recovery will also bring a new challenge to the companies and CEOs who have been busy weathering a downturn. “We’ve all personally and professionally taken a beating, so we want to be well positioned to get the benefit of sectors that we think will lead in an economic recovery,” said Nardelli. “We have to think about getting a strategy in place to get a bigger share of a smaller pie.”
At IHS, a strategic investment committee seeks to foster the kind of entrepreneurial spirit that will bring new products to market or existing products to new markets. “Anybody in the company can bring forward a proposal for profitable growth,” said Jerre Stead, CEO of the technology company, who noted that the carrot for coming up with an idea is the right to lead it to fruition. “The person or team who comes up with something that meets our rate-of-return criteria gets to run that project.”About one out of every six proposals leads to a “make or buy decision,” and approximately half of those fail, he noted. “But that’s O.K., because we also try to reward people for raising their hands when it’s not going to work,” he said. “That’s how you build an entrepreneurial environment.”
Nardelli described introducing similar processes during his tenures leading GE’s Power Systems business and Home Depot. “We took some of the youngest and brightest men and women in the organization and gave them ‘bubble assignments,’” he recounted. “They came in and pitched their growth initiatives and we assigned them a budget and held them accountable for a return.”
Over time, more and more employees began generating ideas and competing to be part of the group. Always a competitive edge, such an innovation incubator can be even more critical when seeking to capture opportunities during a recovery, noted Nardelli. “It’s about what kind of investments we can make that will position us to expand into adjacencies and take existing products into new geographies.”
Focusing on global markets will also grow more important as the recovery unfolds. For Stead, the economic crisis underscored the interdependence of global markets. “The impact of country on country is like nothing we’ve seen before,” he said, noting that signs of the ramifications of the U.S. downturn began surfacing in China long before the stock market plummet. “At Lloyd’s Register Fair play, our shipping information management company, we saw orders on ships in China starting to get canceled in July of 2008. If anything, it’s solidified my belief that every decision we make needs to be on a global basis.”
“Your next competitor is likely be from a different country than your current competition,” agreed Abbasi. “So if you don’t take the time to learn about what is going on in China and India and other emerging economies, you will be less prepared to remain competitive. The opportunity is there and, equally important, the threat is there.”
The stories on the pages to follow offer more highlights from the 11th Annual CEO2CEO Summit, where CEOs gathered to discuss issues ranging from health care reform and energy policy to fostering innovation and assessing risk.