[caption id="attachment_72897" align="alignnone" width="640"] Yum! Brands Chief Diversity Officer James Fripp interviews Kamau Bell of CNN's United Shades of America at CEO Action's Closed Door Session in New York City.[/caption] Approximately 125 CEOs gathered to attend a "closed-door session" in New York City yesterday to talk about advancing diversity and inclusion initiatives. The meeting was sponsored by CEO Action, a coalition launched in 2017 that now has nearly 800 CEO signatories who have pledged to change their cultures by having difficult conversations with employees, educating their teams about unconscious bias and sharing D&I practices. One of the coalition members, Cardinal Health CEO Mike Kaufmann, said the event encouraged leaders to get out of their comfort zones, which is always a good thing. “I’m a guy that believes you can’t make any progress without having uncomfortable conversations,” he told CE. (Kaufmann undoubtedly has had his share of uncomfortable conversations in recent months, as opioid-related settlements climbed well into the billions for the Dublin-based drug wholesaler, but he declined to address the ongoing legal battles in this interview.)
The CEO's Role[caption id="attachment_72890" align="alignright" width="300"] Cardinal Health CEO Mike Kaufmann[/caption] Kaufmann said that if the CEO isn't leading conversations about D&I, nobody else will take it seriously. "In my opinion, it has to start with the CEO—and I don't mean just saying the words and periodically having meetings, but literally making themselves vulnerable and authentic and talking about where they got something wrong. If you don't do that as CEO, nobody is going to take time away from their busy schedules to attend an event or take money out of their budget to bring a speaker in or to fund unconscious bias training. If CEOs aren't engaged, you can see it across the company—it's really just happy talk." Kaufmann added that incentives tied to D&I metrics should definitely be in the mix. "We do that in our compensation program," he noted. "Sometimes in the beginning, incentives might feel more like softballs, but at least it gets the conversation going. You're encouraging people to to at least look at their numbers, to have diverse slates, to do things that will start leading the organization in the right direction. And over time, you have to assess things like putting metrics out there and real numbers on representation." Those goals have to be based in reality, he cautioned. "You can't say I'm going to increase female leadership by 10 percentage points when your turnover is low and there's no way to do that without firing 30 percent of your people. So you have to be careful about how you set goals. But organizations have to tie some portion of compensation to making progress in this area."
A Life-Changing ExperienceKaufmann first became interested in the topic a decade ago, when the leader of the company's women's initiative left the company and Kaufmann asked Cardinal's then-CEO George Barrett if he could run it. It was an experience that led to a lot of uncomfortable conversations that ultimately changed his interactions with women from then on. "It was the most important thing I've ever done in my life." It also led him to believe that the only way diversity initiatives can move forward is when white men, like himself, get involved. "And I mean really involved, so they're in uncomfortable situations and you're making mistakes and you're willing to make them." CEOs also have to surround themselves with "truth-tellers," he added. "They will say to me, 'Hey Mike, when you said that, that could be kind of offensive to women,' or 'Mike, that choice of words wasn't quite right.'" While he acknowledges that the company's employee resource groups are intended to give space to like-minded people of similar backgrounds or cultures a chance to commune, he said he routinely encourages male employees to join the women's ERG, white employees to join the African-American or Hispanic ERGs, and so on, so each can get exposure to the other's viewpoint. "I get really frustrated when folks say—and particularly white males—that they feel like they're being discriminated against. Because that's not what we're trying to do at all. We're really just trying to level the playing field," he said. "I know it feels uncomfortable when you're used to having a 30-year start in a hundred-yard dash and now everybody else is only 10 yards behind you, but that doesn't mean we're discriminating against you. We're just trying to remove the barriers for others." Kaufmann also gets impatient with those who can't see the business case for D&I. "That thinking is really outdated now," he said. "If you were a CEO 20 years ago, there really wasn't a lot of data available. But today there's plenty of scientific, reliable data that will tell you that companies that are more diverse, both in gender equity and people of color, perform better." And if you don't trust the validity of the data, he added, "just look at the workforce. If you're not a company that can attract talent from all groups, you're going to be limited to a really small group of people. How can you get the best talent if you're only choosing from 30-40% of the population? You have to be able to choose from 100% of the population. There's evidence—not just from the returns but the demographics of the country. If you can't see that, you're just not looking. Or you're ignoring it. Because I think it's there."
There's no question that companies need to get a better handle on data—how to get it, how to mine it and how to use it to make better decisions internally, engage employees, excite investors and offer innovative, customized solutions to clients. "But that is not sufficient unless each one of your stakeholders actually trusts the data you're providing and what you're doing with it," says IBM Managing Partner Jesus Mantas. Mantas is one of the coauthors of a new study, conducted by IBM Institute for Business Value (IBV) in cooperation with Oxford Economics; the study found trust to be at the heart of what divides the leaders, or "Torchbearer" companies, which make up just 9% of the companies, and the laggards, or "Aspirationals." Mantas's team collected data from more than 13,000 C-suite executives who oversee leading brands across 98 countries and 20 industries and found big differences between the two categories: • Torchbearers have identified customer trust as their defining issue: 82% say they have turned to data to strengthen the trust they earn from customers, compared with 43% of Aspirationals; • Torchbearers have created a culture of "data-believers": 78% say their C-suite executives rely heavily on data for quality and speed of decisions, compared with just 34% of Aspirationals; • Torchbearer C-suites trust their data: 69% say the C-suite "has extensive access to accurate and actionable 360-degree customer data" vs. just 22% of Aspirationals. • Torchbearers are using that data more often to develop new business models (70% vs. 33%) and to enter new markets (66% vs. 31%), and are planning significant investments in AI or machine learning (72% vs. 40%).
Perhaps most importantly, the Torchbearers outperform their peers in revenue growth and profitability:Mantas sat down with Chief Executive to discuss the findings and how CEOs can use them to move their companies from aspirational to torchbearer.
How is trust something that ultimately leads to better performance?So the world is becoming more and more regulated. In Europe already, now you have regulation about what data you get to keep based on the transparency you provide your customers. Your customers now get to decide if all that data—whether you're trying to collect or you already have it—can be used by you to help them. So the Torchbearers use their data with a specific purpose to increase trust on the part of their clients, through transparency or making it very clear how they're using the data. As a result, those companies get to keep that data and use it and so, because of that customer trust, they get to outperform others. Conversely, organizations that don't have that trust, even if they have collected the data, in a world that is becoming more regulated, if your clients don't trust you, they may not let you keep the data. In our study, the difference between the Torchbearers and the Aspirational companies is almost double—91% more Torchbearers use data to strengthen customer trust. [caption id="attachment_72820" align="alignright" width="300"] IBM Managing Partner Jesus Mantas[/caption]
We don't yet have that level of regulation in the U.S. Why should CEOs of U.S.-based companies care?Well, Europe is the more visible example because they have already created a now well-known regulation, [General Data Protection Regulation (GDPR)], but that is probably going to come to every country in the world in some shape or form. But even without the regulation, when you ask consumers, "Are you concerned with what companies are going to do with the data they collect?"—that level of concern has almost doubled in the last year. The same can be said of the use of algorithms. Some states and cities are now regulating whether you can or cannot use visual identification algorithms and for what purpose. I think CEOs in the U.S. know that most companies are global in nature anyway so most of the U.S. companies also operate in Europe.
The report notes that Torchbearers say their C-suite teams "have a data mindset." What does that mean? And how can CEOs get their teams to adopt a "data mindset"?I think the simplest way to describe it is to basically replace the natural habit of making decisions based on experience with a new learned habit of making decisions based on the data first and the experience second. What's interesting is you see that behavior very well in the new generation of millennials. If you or I were asked, "what is the capital of France?" we'd say Paris because we've learned that. But if you ask a millennial, the first thing they'll do is Google it to get the data. It's a very simple habit, but you have to learn that in the corporate world, to first query the data and then impose opinion and experience. There are many ways to do that—it all comes back to what you do with the data and how you present it, and how do you modify workflows to make sure that data-based truth is presented before a decision is made. The GPS is actually the perfect example of a data-driven tool that, as consumers, we have accepted without any problem. So the C-suite needs to embed more GPS-like interfaces in every one of their processes. The other thing that has to happen is a change in culture. That also correlates more with cultures that are more flat, where leadership moves more to the edges, because at the end of the day, you have to distribute the decisions to the places where all that data can be taken into account in a better way to make decisions. It's interesting, because all of these different trends collide in the sense that organizations that are more agile tend to be more "data first."
Most culture changes have to start at the top, with the CEO himself or herself. Does that mean CEOs have to do a better job of making decisions based on data first?Most CEOs would tell you they do that by definition. It's just the magnitude to which they do it and magnitude to which they implement transparency. So if you were to ask a CEO, "Do you make data-driven decisions?" they would say, "Of course." But if you asked a different question—"is the data you make decisions with transparently shared across the entire company?"—very few have actually implemented that level of transparency. The problem with many C-suites is they do make decisions based on data, but that data is almost created for the purpose of that decision and it's then not transparently shared. So it may represent an alternative reality.
When you say transparency, do you mean all the way to your front line?Yes, all the way to your front-line people, whether it's a budget, status of a project, stats of an order, NPS data, you want to make sure you have a foundational data platform, so whether you're a person in front of the client or you're the CEO, you're looking at the same data.
What are the economics of that for mid-size companies who don't have the budgets of large multinationals?The economics of that have changed a lot because of the cloud. One of the trends that really is democratizing the data is the hybrid cloud. You can have the data and algorithms programmed once and it can be run publicly, very inexpensively, or it can be run privately, secured, with permissions. Hybrid cloud makes that a lot more portable, so whether you're a startup, a midsize, a large corporation, you can access these. Because of cloud, the economics of using data, using AI and being able to implement it in processes have massively changed.
The study notes that the Torchbearers excel at sharing data with partners throughout their ecosystem. Aside from the privacy element, how can CEOs get comfortable with the idea of sharing proprietary data without fear of losing competitive edge?The Torchbearers really have discipline around data ownership, it's very clear. They manage that data like a resource, as they would any other resource. The good news is that technologies like blockchain, when you strip down the hype, blockchain is just a distributed database that can be permissioned. So even though you have transparency, that doesn't mean everybody sees everything; you can have transparency but permissioned differently for every person, so you can basically have your cake and eat it, too. Everyone sharing the data knows that no other party can manipulate it so there is trust there.
So you think that companies will get more comfortable sharing with partners and even competitors?I think we're going to see in the next two years an evolution on that. We're going to see data that, in the past, companies were reluctant to share that they will now start sharing because the transparency will give them more benefit than not sharing. Like pricing data—that's something that almost every company would say is pretty confidential—or employee compensation data. You can see platforms springing up, like Glassdoor intermediaries aggregating the data and sharing it. So some companies are saying, let's remove the intermediary and just be more transparent. The interesting thing is, if you're a really great employer, then it's to your advantage to share it. If you're a really bad employer, it's not to your advantage. So I think we're moving to a world where, if you don't share the data, then maybe you're not that good at it. There's actually an interesting dilemma between companies and consumers—as consumers, we are all demanding better protection and privacy of our data but at the same time, we're all demanding more information from companies. when you look at the torchbearers, they seem to be managing that balance better. My expectation is that over the next two years, the role of brands as the proxy of trust is going to shift to the data you share. the more you share, the more you'll be trusted.
Some would call Adam Carte's career path unusual. After spending the first 10 years in the energy industry, Carte crossed over into manufacturing. That was followed by a foray into mining and then, most recently, a segue into the world of AI technology. That zigzagging route could suggest a tendency toward professional wanderlust. But Carte says it isn’t the lure of new industries that draws him, but the irresistible pull of a new challenge. “From the time I was a young boy, that’s just been part of my personality,” he says. “I also have a hard time saying no when people ask me to do things.” He identifies with an answer that the actor Christopher Walken gave in an interview when asked if he had anticipated the arc of his career. “He said that his only problem is that he’s always had a hard time saying no,” recalls Carte. “That really resonated with me.” Carte couldn’t refuse the opportunity to grow Luminoso, an AI-based text analytics software company that helps companies quickly analyze and act on customer feedback. The biggest challenge, he says, will be “keeping all of our team-members in sync as we shift from a science/tech-focused start-up to a customer-driven organization.” That will necessitate hiring for new skills “while preserving the chemistry that built the technology that powers everything we sell.” That transition is a tough one, as dozens of CEOs of now defunct software startups can attest. But Carte is no stranger to challenges: as COO of Niotan, he increased revenues by 30% and led the sale of the company to a strategic buyer, and as CEO of Cadre Proppants, he doubled EBITDA and sold the company for a cool $100 million. And while he hasn’t been in this exact spot before, he has a great deal of applicable experience to draw on because, as he points out in the following interview, the most important CEO skills absolutely cross industry lines.
What lessons from your early days in energy still inform your leadership?So I spent the first 10 years of my life in the rapidly changing, deregulating power industry. During that time, we took a very small company to an IPO with about a $2 billion valuation. Then, of course, Enron happened and we went bankrupt. So living through that, I saw how there are things that you can’t control—things in the market that just are going to happen—but there are a lot of things inside an organization that you can control. For me, it’s about going in and doing everything you can to minimize the unforced errors because business is hard enough without shooting oneself in the foot. So I've always enjoyed getting into organizations and helping to minimize that risk, those unforced errors, so that you can maximize your chances against those things that you can't control.
What are some of the specific leadership or management skills that cross over from, say, a mining company to a technology company?It comes down to people at the beginning, right? Sitting in the CEO seat, you end up spending 80% of your time on HR-related issues, one way or another, so it’s finding the right people—and I think too often people think about it as getting “just the right person,” as if there's all sorts of bad people out there. I mean, obviously there are people who are more qualified than others, but often it’s just getting the right person at the right time with the right perspective. At Luminoso, we knew we had this fantastic technology, but we needed it to be easier to use. We needed to have a product that you didn't have to be a programmer, an expert or a data scientist to use. So bringing in Ying Chen [as chief product and marketing officer] who had that background and that energy has been a transformative event for us. At the mining company, they had a team that was very technical and focused on the engineering side, which of course one needs, but had lost track of what the customers were saying to them. So when I came in, there was actually an existing executive there that I was able to promote into a position of larger leadership and running the sales organization and that allowed us to hear from customers, and we introduced a new product line. I think we grew revenues from $32 million to $45 million in about 12 months.
What other early lessons do you live by today?One needs to recognize the difference between what one wants to happen and what is actually happening. I'm a very data driven person—probably to a fault—so I want to know what's actually happening, even if we all agree that we really want other, different things to happen. One of the challenges of being in the CEO spot is that so much of the information I get is second hand. I try to overcome that by getting out and talking to customers—I actually just got back from Japan where I met with some of our important customers there—but still, the CEO gets a lot of information second hand. So I don’t care if it's software or it's mining or power or whatever industry, having somebody who I trust, who is capable of separating objectively what is from what one wants and can relay that accurately to me so we can make decisions based on that—that is super helpful.
Does that mean no messengers are shot on your watch?No, no. I like them. I mean, I don't like bad news—but I feel more confident when I'm hearing things that are even spun sometimes a bit pessimistically because I'd rather know the downside risks than be surprised.
In what ways has your finance background prepared you for the CEO role?Well, look, everything ultimately comes down to making money for shareholders, right? I mean, that’s what we're in business for. My finance background helps me because I can speak the language to the board and to the investors and translate the messiness of company operations into language that instills confidence with investors that the decision-making is right and that everybody is aligned with one another. But I think any CEO, whether they come from finance or marketing or legal or sales or wherever, has to have enough crossover skills to understand the whole business.
What attracted you to Luminoso?Before Luminoso, I had spent some time as CEO of an AI-driven machine vision technology startup called Nirenberg Neuroscience, so one of the things that attracted me to Luminoso was the similarity to that. This is the next evolution of artificial intelligence, where you're getting away from tagging and training millions of data points to come up with static solutions that don't generalize. That's a great tool—but what we really need is these generalizable solutions. So Luminoso has technology that, because it has this very rich background space, it can solve questions generalizably so that anybody can use it, and your model is not going to break if you move from one use case to another or one industry to another.
What is your process for learning a new industry?There are things about any business that are transferrable and there are things that aren't. The things that aren’t are [things like] how do decisions get made? How do contracts get negotiated in that particular ecosystem? What is the perspective of that industry’s risk and reward and so forth. So any time that I get involved in a new industry, the beginning stages are about spending a lot of time outside of the company talking to customers, talking to suppliers, talking to bankers that support that industry to just learn.
How much time would you say you spend on that initial phase of getting up to speed?It never entirely stops, but there's the first three months or so of really intensive talking to everybody. Everybody has their own perspective and it's not like anybody's wrong or lying to you, but you need to get multiple vantage points in order to really synthesize and get an understanding. So it takes at least three months to really get up to speed and then you just have to keep asking questions going forward.
You've taken the last few companies you’ve headed through to a sale. Is that the goal with Luminoso ultimately?That's the most common exit you see, but I think that it really depends on what your investor’s risk profile is. My job is to create as much value as I can inside the company so that we have as many options as possible. At my very first company—and I wasn't CEO of that—we went public before we went bankrupt. So I have the experience of taking a company public, I know what's involved with that. That's certainly not off the table in any situation and I think any investor group would see that as a potential win. But in the real world, most companies exit through acquisition. I don't focus on a particular exit, but on creating value and optionality. The more valuable you are, the more options you have. One of the things that's so attractive about Luminoso is that it’s unlike a mining company where there's a ceiling to how big it can grow—there’s only so much you’re going to get out of any given mine so you would have to go and acquire other mines. There's no limit to what we can do at Luminoso. We have a technology that nobody else has. And once you hit that stride of repeatable sales, we can have our revenues double or triple very, very quickly.
Hypothetical question, since you’re still right in the middle of this challenge, but assuming you achieve the perfect exit, are there any other industries you’ve secretly been wanting to try your hand at?I think I’ll fall back on the Christopher Walken quote. It’s more about what’s exciting and I'm probably gonna have a hard time saying no to something that looks interesting. It’s hard for me to think beyond what I’m immersed in now, though. I get very in depth into what I'm doing and it becomes literally what I'm living and breathing day and night. But I’m reasonably confident that whatever comes next will be fun.
[caption id="attachment_71551" align="aligncenter" width="696"] Adam Aron, CEO AMC Entertainment[/caption] Whether the goal is to find a perfect complement to a product portfolio, eliminate key competition or realize scores of synergies, proposed mergers begin with the highest of aspirations. But in the majority of deals, something unfortunate happens on the way to a successfully combined company, agreed CEOs gathered for a roundtable discussion cosponsored by Chief Executive and AlixPartners. In fact, study after study puts the M&A failure rate at between 60 and 90 percent. “It’s never because it was a bad idea around strategy or product. It’s almost always around culture, around people,” said Ted Bililies, head of the organization & transformative leadership practice at AlixPartners. Sometimes mergers fail because the acquiring company failed to grasp what it was buying, said Adam Aron, who was CEO of Starwood when the company was sold to Marriott International. Aron cited the 1980 merger of Pan Am and National Airlines as an example of poor merger management. “Whatever decisions Pan Am made, just do the opposite of that.” Among other things, those mistakes included a fundamental misunderstanding of the product and of the cost structure, which led to ballooning costs.
Putting People FirstBut more often than not, mergers fail because employees didn’t get behind them. “The vision wasn’t sold,” said Bililies. “The CEO did not help hearts and minds really grasp the vision and did not get that commitment. There may have been a lot of head-nodding, but they didn’t grasp, ‘What’s in it for me?’” When employees don’t get information from leadership, added Rena Reiss, EVP and general counsel of Marriott, “they’ll make it up—and usually what they make up is really bad.” Transparency is paramount. “You have to, as the CEO, be very straightforward,” said Jay Sidhu, CEO of Customers Bank and BankMobile. “You need to say, ‘This is what we’ve done, this is where we stand, this is the purpose. We’ll have 30 percent cost savings over here, and this is the criteria and the timetable we will use.’” It’s not enough to say it once, added Bililies. “I do a lot of executive coaching and CEOs will say to me, ‘I’ve told them what the strategy is. I told them where we’re going.’ And I say, “You have to tell them 10 times as much. Until you’re ready to just get nauseous, you have to keep communicating.’” When synergies are a key goal of the merger, it becomes even more important to communicate, as the anxiety that swirls around potential layoffs can be corrosive, said Christopher Missling, president and CEO of Anavex, who lived through the merger of Hoechst AG and Rhone-Poulenc. “We had a lot of uncertainty and it was aggravated by the differences in culture.”
Coupling CulturesCombining two companies’ cultures, particularly when both are strong and distinctive, is often the greatest challenge, noted Reiss. “How do you welcome the other company into the organization without suffocating whatever it was that made it attractive to you in the first place?” That was the task Marriott set for itself when it acquired Starwood Hotels in 2016. “What you’re trying to do is get the best of both companies, to bring them together to make a one-plus-one-equals-three as opposed to one-plus-one-equals-two,” Reiss said. To get there, employees at both companies need to feel fully welcomed. “You need to work hard to make it clear there is no second-class citizen at the new company,” said Aron. “It doesn’t matter where you came from, it just matters that you’re here now, and that we’re all in one boat together in whatever it is that survives.” That message comes through in seemingly small gestures, such as repainting walls in the new company colors or giving out bags with the combined company’s logo on integration day. Those are the sorts of details that signal employee equality, regardless of which company acquired the other. “People underestimate the power of symbols,” added Bililies. Leaders can be overly focused on redundancies and the bottom line and miss the opportunity to take steps that really resonate with and motivate people. Symbolic gestures go a long way for senior management as well, said Missling. In the case of the Hoechst/Rhone-Poulenc merger, he was invited to a senior management lunch with the CEO. “They all spoke French, even though the agreed-upon language [post-merger] was English. “That made the difference to me,” he said. Culture change is even harder when your company is in a legacy industry and working on transformation, said Alan Maserek, who joined Vonage as CEO five years ago to lead a shift from residential telephony to business communications. He has since led the company through seven acquisitions, totaling about $1 billion, of small and midsize B2B software companies. “You can just imagine the complexity of all this change,” he said, noting that many from the original organization, including nearly the entire management team, were not able to adapt. Even seemingly transferable skills, such as accounting, did not always cross over successfully. “You think, it’s just debits and credits, they can handle that in a B2B environment,” he said. “But almost uniformly, it’s not been the case because those who self-selected into the former environment, which was slow and lethargic, they’re just not well suited [to the new culture].” For the CEO of the target company, managing culture through the selling process can be equally challenging. When watchmaker Tourneau was bought by European retail giant Bucherer Group, CEO Ira Melnitsky knew he might not be a part of the combined entity’s management team. “But I also had to manage a team behind me who didn’t know what was going to happen,” he said, adding that, ultimately, the entire management team remained post-merger. “But when you’re the seller, you don’t know what the acquirer will want to do or who the acquirer is even going to be.” Once the deal is done, CEOs should use all the tools they have available to communicate, ad nauseum, about the future. That means getting out to plants and business units, meeting with people and sharing the vision, said Alan McLenaghan, CEO of Saint-Gobain SageGlass, who recommends supplementing visits with social media. “I challenge CEOs today to use social media, not where someone else is writing it for you, but you’re writing it yourself,” said McLenaghan, who uses his LinkedIn account to highlight team achievements. Recently, he sent a traditional thank-you card to a team member, who then posted it on LinkedIn. “If my people are saying, ‘I got this thank you card from the CEO,’” he notes, “there’s not much I have to say about what the culture of the company is—it’s pretty much there.”
Marijuana is legal. And it isn’t. Confused? You’re not alone. Welcome to the thorniest labor issue of the decade.