January–February 2021

The Former CEO of Guardian on Using Values to Drive Strategic Planning

When Hurricane Sandy struck the mid-Atlantic coast, in October 2012, thousands of Guardian employees in New York and New Jersey were affected, and company headquarters was flooded by five feet of water. Two days later all the team members had been accounted for; some had been put up in hotel rooms, others had been supplied with generators, and Guardian had created a fund to cover employees’ hurricane-related costs.

That experience taught Mulligan to think even longer-term than she always had: What were all the things that could go wrong, and how could the company protect itself from them? What could go right if Guardian were poised to seize the opportunities presented?

Technology became a top priority: The company migrated many applications to the cloud and modernized employee productivity tools. It built a data analytics operation from the ground up and retrained actuaries to be analysts. Working remotely became common at Guardian. And its leaders anticipated two other important issues for organizations: diversity, equity, and inclusion, and the gig economy.

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It’s Time to Replace the Public Corporation

Critics charge that in today’s heavily traded capital markets, executives are increasingly incentivized to manage in tiny, short-term windows, with an eager eye on their stock-based compensation and a fearful one on activist hedge funds. In any case, something isn’t working: The number of public companies in the United States declined by half from 1997 to 2015, while the number of companies with a dominant shareholder or a dominant group of shareholders in the S&P 1500 increased by 31% from 2002 to 2012.

In this article the author tracks the decline of the public corporation and explains why its most important shareholders—retirement investors—and the most critical part of its workforce, namely knowledge workers, are ill-served by this model. He proposes a new structure, which he calls the long-term enterprise (LTE): a private company in which ownership is limited to those two groups of stakeholders, who have the greatest interest in long-term value. The LTE, Martin argues, would also diminish the ability of activist hedge funds to extract gains at their expense.

The complete Spotlight package is available in a single reprint.

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Don’t Let the Short-Termism Bogeyman Scare You

The author, a professor at Harvard Law School, argues that concerns about the perils of short-termism—and support for measures that would insulate corporate leaders from the outside pressures that allegedly make them myopic—are long on alarming rhetoric and short on empirical evidence or economic logic. Furthermore, he writes, the threat of hedge fund activism should be expected to discourage managerial slack and underperformance, thus playing an important disciplinary role and incentivizing leaders to enhance shareholder value.

The complete Spotlight package is available in a single reprint.

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The Rules of Co-opetition

“Co-opetition”—cooperating with a competitor to achieve a common goal or get ahead—has been gaining traction for three decades. Yet many companies are uncomfortable with the concept and bypass the promising opportunities it presents.

In this article two professors who helped introduce the approach offer a framework for deciding whether to team up with a rival, drawing on examples from Apple and Samsung, DHL and UPS, Ford and GM, and Google and Yahoo. Their advice: Start by analyzing what each party will do if it chooses not to cooperate and how that will affect industry dynamics. Sometimes working together is a clear win, but even if it isn’t, it may still be better than allowing someone else to take your place in the deal—which could leave you at a disadvantage. Next, it’s critical to figure out how to cooperate without giving away your “secret sauce”—your current advantages. Once you’ve done that, you’ll need to craft an agreement that clearly outlines the deal’s scope, who is in charge, how the arrangement could be unwound if needed, and how gains will be divided. You’ll also have to manage resistance within your own firm and alter internal mindsets. Co-opetition requires mental flexibility, but firms that develop it can gain an important edge.

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The Forgotten Dimension of Diversity

Workers who come from lower social-class origins in the United States are 32% less likely to become managers than those who come from higher social-class origins. That represents a disadvantage even greater than the one experienced by women compared with men (27%) or Blacks compared with whites (25%). Social class disadvantage in the workplace prevails in every major economy around the world.

In discriminating against people who come from a lower social class, we’re discriminating against a majority of the workforce—a grossly harmful indulgence, especially when you consider what happens if you don’t discriminate. According to the author’s research, GDP is higher per capita in countries where more managers come from lower social-class origins.

Companies pay a lot of attention to issues of gender and race, and for very good reason. In this article, the author argues that it’s time to focus equally on social class disadvantage. In doing so, he notes, firms reinforce their efforts to combat other forms of disadvantage. He explores the root causes of the problem and lays out the most promising interventions that are emerging from research and practice to help remediate it.

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Negotiating Your Next Job

When you’re seeking to advance your career—by joining a different company or moving into a new role with your current employer—it’s important to think strategically about not just what you want but how to get it. In this article the authors draw on their work coaching executives and their cross-cultural research to propose four steps that can help you prepare to negotiate.

First, think broadly about your long-term career goals instead of focusing narrowly on the offer at hand or the question of pay and benefits. Second, be mindful of what type of opportunity you’re asking for—something standard, an unusual arrangement for yourself, or a chance to take your organization in a new direction—and tailor your arguments accordingly. Third, arm yourself with the necessary information to reduce ambiguity about what’s possible and with whom to negotiate. Fourth, connect with people who can be helpful in making your case, and approach negotiations as an opportunity to enhance your working relationships.

If you follow these steps and set career targets that are specific and realistic, you’re more likely to chart a path to success.

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When Machine Learning Goes Off the Rails

Products and services that rely on machine learning—computer programs that constantly absorb new data and adapt their decisions in response—don’t always make ethical or accurate choices. Sometimes they cause investment losses, for instance, or biased hiring or car accidents. And as such offerings proliferate across markets, the companies creating them face major new risks. Executives need to understand and mitigate the technology’s potential downside.

Machine learning can go wrong in a number of ways. Because the systems make decisions based on probabilities, some errors are always possible. Their environments may evolve in unanticipated ways, creating disconnects between the data they were trained with and the data they’re currently fed. And their complexity can make it hard to determine whether or why they made a mistake.

A key question executives must answer is whether it’s better to allow smart offerings to continuously evolve or to “lock” their algorithms and periodically update them. In addition, every offering will need to be appropriately tested before and after rollout and regularly monitored to make sure it’s performing as intended.

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How to Talk to Your CFO About Sustainability

By now most companies have committed to sustainability efforts—and yet many CFOs still see those efforts as a cost rather than a source of value. That makes it hard to unlock the internal financing needed to scale them up.

The authors—the director and a senior scholar at the NYU Stern Center for Sustainable Business—have developed the Return on Sustainability Investment (ROSI) analytic tool, which companies can use to measure the financial returns on their sustainability activities. Implementing ROSI is a five-step process. Companies should (1) identify their current sustainability strategies, (2) identify related changes in operational or management practices, (3) determine the resulting benefits, (4) quantify the benefits, and (5) calculate the monetary value. The savings and growth thus revealed can reach hundreds of millions of dollars; in large companies, it can be billions.

Particularly now, as companies scrutinize budgets threatened by the Covid-19 pandemic, ROSI analysis can help CFOs improve organizational finances through sustainability investments that create value for investors, employees, customers, and the world at large.

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Volunteer Programs That Employees Can Get Excited About

Across society, volunteerism has been stagnant or trending slightly downward in recent years. In the corporate world, however, it has been on the rise. In fact, paid time off for volunteering is one of the few employee benefits that has increased significantly over the past five years.

The benefits of well-designed corporate volunteer programs have been clearly established: They boost productivity, increase employee engagement, and improve hiring and retention, to name just a few. But too often, firms’ programs fall short.

In designing their volunteer programs, companies fall prey to common pitfalls: They blindly copy what other firms are doing, prioritize leaders’ pet projects, or pressure employees to participate, essentially making volunteering mandatory.

Such errors diminish the value of the programs to the company, employees, and society. Instead, firms should prioritize meaning, balance top-down structure with bottom-up passion, and seek to involve a variety of stakeholders in their initiatives.

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Compensation Packages That Actually Drive Performance

By aligning executives’ financial incentives with company strategy, a firm can inspire its management to deliver superior results. But it can be hard to get pay packages right. In this article four experts break down the key elements of compensation and explain how to put them together effectively.

When designing packages, boards must make decisions about the proportion of fixed versus variable pay, short-term versus long-term incentives, cash versus equity, and group versus individual rewards. Many look at the copious data available on executive pay and benchmark their plans against those of their industry peers. The mix is also driven by company size, region, culture, and risk appetite.

A good plan always begins with a firm’s strategic goals, however. Is the company striving for profitable growth, a turnaround, or a transformation? Is it trying to compete with public companies as a private entity? Each scenario calls for a different plan design.

The Covid-related economic crisis may also alter plans. If targets become unachievable, incentives will lose their power and need to be revised—offering firms a chance to incorporate measures that serve stakeholders’ interests better.

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Build a Family Business That Lasts

Judging from how they’re portrayed in the media, it would be easy to dismiss family businesses as hotbeds of power-playing, backstabbing, and favor-currying, ultimately destined to fail; think of the Murdochs and News Corp, or the Redstones and National Amusements, to name just two. But many family businesses have enjoyed success for decades, even centuries. The authors explore five aspects of ownership that are crucial to whether a family business thrives or perishes: the type of ownership (whether a sole owner, a partnership, or another arrangement); the governance structure; how “success” is defined; what information the owners will (and won’t) communicate to other family members and stakeholders; and how to handle the transition to the next generation.

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How to Help (Without Micromanaging)

Extensive research shows that when employees get hands-on managerial support, they perform better than when they’re left to their own devices, but unnecessary or unwanted help can be demoralizing and counterproductive. So how do you intervene constructively?

The authors share three key lessons learned during 10 years of study: (1) Step in only when people are engaged in a challenging task and ready to accept help; (2) clarify that your role is to offer assistance, not take over the project or judge anyone; and (3) align the rhythm of your involvement to employees’ needs, determining whether the situation calls for intensive guidance in the short term or intermittent path clearing over a prolonged period. These strategies are especially valuable for helping teams that are physically separated, as so many are during the current pandemic.

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