FORUM: CEO challenges in 2017: risk and transformation

May 2017  |  SPECIAL REPORT: OPERATING AN EFFECTIVE BOARD

Financier Worldwide Magazine

FW moderates a discussion on risk and transformation challenges for CEOs in 2017, between Maggie Wilderotter at Grand Reserve Inn, Dr Horst J. Kayser at Siemens AG, and Susan Stautberg at the WomenCorporateDirectors Foundation.

FW: In your opinion, what are some of the most pressing business challenges and emerging issues that CEOs and top managers are facing in 2017?

Wilderotter: A few of the biggest challenges facing CEOs in 2017 include uncertainty around the regulatory environment, free trade, tax reform, cyber security detection and protection, technological disruption, political instability around the world, social media influence and changes in consumption patterns.

Stautberg: One of the most pressing issues CEOs and boards of directors will face is how to adapt to a new era of globalisation – navigating the opportunities afforded by global markets, supply chains and financing, alongside challenges around local regulations, nationalist movements and major shifts in trade agreements. These often-opposing forces create speedbumps to growth that, for many companies, require a more complex approach to globalisation than in the past. Decisions such as moving a factory overseas or setting up a new European distribution structure after Brexit will become much less straightforward than before. CEOs and their teams will have to weigh many more factors and bring in their boards for these kinds of strategic discussions.

Kayser: One thing is for sure: uncertainty will continue to dominate our lives in the future. We think the world in which we operate has become more complicated. Current geopolitical developments require our attention, such as a rapid increase in populism that is fostering nationalism and protectionism, hindering free trade and international cooperation, as well as global migration. But there is also climate change. If we want to give future generations a viable basis of life, we have to decarbonise the global economy. Another important factor to mention is the Fourth Industrial Revolution. We are experiencing the full impact of the advent of digitalisation in the industrial world. It is changing everything, all areas of life, all industries, our society and the way we work.

FW: In general, are CEOs prepared to cope with the disruption caused by mushrooming geopolitical and social tensions, policy flux, financial market volatility, labour market imbalances and other upheavals?

Stautberg: Disruption – both the ‘what’ and the ‘how fast’ – are often hard to predict. Yes, we are all used to change, and expect things like technology leaps to keep our organisations in a constant state of catchup. But geopolitical changes, driven by popular sentiment and upheaval, still manage to surprise us and knock us on our heels. CEOs and boards of directors appear to be better equipped to cope with the more predictable changes in tech and the financial markets, and seem less prepared to manage the inevitable ‘black swan’ events when they occur. I believe the best boards can really help management in this area – helping them ‘see around corners’ and anticipate where the next challenges will come from.

Kayser: In an environment characterised by uncertainty, investment decisions cannot be made easily. But to some extent, we will have to accept this uncertainty and learn to cope with it. I think the most important thing is that we will not – and never did – leave our customers to themselves. We need to concentrate on our customers and their specific needs.

Wilderotter: CEOs are reaching out to each other through groups for insights and strategies to handle global issues that face all enterprise businesses. They are also utilising their boards in a more strategic way and there is more transparency with employees and stakeholders on the challenges and opportunities.

FW: In a year which seems to be promising nothing but uncertainty, how should companies go about determining whether they are driving change – or if change is driving them?

Wilderotter: Successful CEOs focus on things they can control and spend less time on things they cannot. There is also a balance to drive short-term and long-term value creation through innovation, customer and employee focus and understanding and anticipating how trends can affect their businesses. One has to adapt to the current environment where sometimes you do have to react and other times you can be proactive. Thinking through strategic choices on a regular basis is critical.

Kayser: I believe it is better to shape transformation than be affected by it. Change must be seen as an opportunity because it calls into question established points of views and inspires new maxims for action. Look at digitalisation. By the year 2000, some two billion gigabytes of data had been accumulated worldwide. Today, the same volume of information is generated in a single day. You need to identify the opportunities provided by this megatrend.

Stautberg: Who is driving the bus of change really depends on the particular strengths and weaknesses of a company. Some companies can outpace everyone in certain areas, but fall behind in others. Apple cannot be beaten in its brand strength and innovation culture, but its high prices keep its distribution somewhat limited in a global market that largely cannot afford its products. So while it is setting the gold standard in certain benchmarks, in others it is not currently as effective. Companies need to constantly assess how their decisions around technology, markets, pricing, and a host of other factors are affecting their execution against strategy.

FW: To what extent do CEOs need to leverage talent and culture within their organisation to survive and thrive in a volatile global environment?

Kayser: Employees are the biggest treasure you have in a company. Therefore, you need to encourage them to rethink the way they do their job, to develop new ideas and – most importantly – to share them. This works best in an environment that allows open and critical dialogue, but it also requires responsible action. We call this ‘ownership culture’. We want our employees to act in the best interest of their company. Such a cultural transformation, however, cannot simply be ordered. The management team must lead the way by setting a good example; you need to create incentives and set the right tone. Dialogue must be possible across departmental and hierarchical boundaries, if you want to gain access to the best experts and ideas – that is why we are transforming toward ‘horizontal leadership’, which means that we cannot reach decisions solely on the basis of rank.

Stautberg: Globalisation creates many new opportunities and threats for companies, and chief among these is developing and attracting talent. Companies seek a strong corporate culture in order to communicate vision and mission, and this requires a clear alignment among employees at all levels as to the organisation’s priorities. However, when you are hiring talent for their local expertise in all corners of the globe, it can be challenging to get everyone on the same page. A centralised brand and corporate culture developed in one part of the world can run up against different local customs, business practices and expectations throughout a global company’s far-flung operations centres. CEOs need to be very conscious of this and set a strong tone at the top to get leadership buy-in, and the company must ensure that it has sufficient training and development opportunities to internalise the culture on a consistent basis.

Wilderotter: Talent and culture is more important that the best strategy. With great athletes on the team who live by a common set of values, companies can accomplish great things. It enables you to be nimble, disciplined, disruptive and to execute well, over and over again.

FW: Is there a danger that CEOs can overlook problems associated with static processes, rigid roles and outmoded thinking?

Stautberg: There is always a danger of going on autopilot with regard to systems and siloes and ways of doing things that may have worked well in the past. It often takes a painful experience to drive change – such as seeing a once small competitor grab away much of your market share or watching a company in a completely different industry suddenly enter your market with a bang. CEOs must empower their leadership teams to question assumptions and think across siloes, internally, and across industries and markets, externally. This is also where the board of directors can come in, to empower even the CEO himself or herself to do the same thing. Early involvement of the board in strategy discussions allows new ideas to be considered before they are fully ‘baked’.

Wilderotter: CEOs that do not reassess all facets of their business practices constantly do so at their peril. What worked yesterday will not necessarily work tomorrow. There should be no ‘sacred cows’ and a thorough assessment of new ways to delight customers and to make serving them easier for employees is critical.

Kayser: If we accept that change will be the only constant, and I am sure the speed of change will increase, then we must prepare ourselves for these changes – as a society and as a company. And it will not be the biggest companies that survive, nor will it be the fastest. The successful companies will be those that can best adapt their culture and value to these changes. You need to have a different mindset, allowing disruptive thinking within the company. If you close your eyes to new innovations, you will overlook new technology trends and innovative business models and might find one day that no one will buy your products anymore. This is one of the reasons why we started to cooperate with startups 15 years ago. Startups allow us a glimpse into the future, but they also give us access to people with brilliant ideas. Startups are used to being fast and capital-efficient, which is the perfect setting to test new business opportunities.

FW: In an era of digital transformation, do you believe CEOs are taking full advantage of the productivity gains that technological advances offer? How can new technologies transform business performance, enhance efficiency and drive growth?

Kayser: Even long before the world started talking about ‘Industrie 4.0’, our customers’ needs had changed. They require new high-quality products and individualised offerings produced in shorter intervals and with less energy and fewer resources, in order to meet the increasing cost pressure. Without access to the newest technologies, manufacturers set their competitiveness at risk and miss the huge market potential that digitalisation and automation offer. For example, in our ‘digital factory’ in Amberg, Germany, we are already using the kind of manufacturing processes that will become standard at many factories in just a few years. The products there guide their own production and let the machines know what requirements they have.

Wilderotter: Some CEOs do a better job of dealing with digital transformation than others and we have seen a decline in productivity over the past 12 to 24 months. Transforming engrained processes does take time and you have to redesign to maximise the benefits. The danger is going halfway or not taking advantage of what the technology can deliver, and there are social and political trade-offs that can hinder productivity gains. New companies with new business models have an easier time with productivity gains since they are not disrupting the status quo.

Stautberg: There is a lot of mixed news about productivity, with many companies choosing to hire relatively inexpensive talent rather than investing more significantly in expensive new technology platforms. 2016 marked the slowest gain in worker productivity in the US in five years. But we also have many firms going all-in on productivity-improving initiatives around cloud platforms and the Internet of Things (IoT), and, I think, as these companies eventually pull ahead, we will start to see more and more embrace this kind of investment.

FW: What advice would you give CEOs in terms of positioning their companies to succeed in a world rife with risks, shocks, uncertainties and disruptions?

Wilderotter: CEOs need to remember they cannot be successful in such uncertain, risky times by relying solely on their own judgement. They must reach out for input, advice and learning from others, including their board of directors, employees, key customers, key shareholders and other CEOs. Staying in touch and in tune with the changing landscape allows for change ahead of surprises. Be decisive. Taking calculated risks and fast course corrections when necessary are critical success factors too.

Stautberg: A key piece of advice is to strengthen your working relationship with your board and listen to their advice on how to bring your company forward. Building that trust is vital in a time of uncertainty, as these are often the moments where people are afraid to take risks. But, instead, these are the times where you need to be bold – where you need to embrace innovation not just in technology but in talent and processes and everything you do. To do this, CEOs need a partner in the board – who can help judge the risk and how it ties to the overall vision for the company and where it needs to be in the years to come. This CEO-board relationship is essential to setting the tone for all other relationships down the line in the company and ensuring that you are aligned in your appetite for risk.

Kayser: We have asked ourselves three simple questions: What do you stand for? What sets you apart? How will you achieve long-term success? Only if you have sustainable answers to these questions can you secure the basis for the sustainable success of your company.

FW: How do you see the role of the CEO evolving over the coming years, in terms of managing risk and driving corporate transformation?

Stautberg: The CEO will continue to drive the ‘story’ of the company – to bring along the board, employees, investors, customers and all other stakeholders in the vision for the company, while also getting input from these stakeholders. This vision supersedes all business models and strategies, which can and do change quite frequently, and establishes a lodestar going forward. By communicating a strong vision, the CEO is helping guide decisions around risk – leadership teams can keep things that deliver on this vision and pivot when things depart from that vision. The CEO will only be as strong as the shoulders on which he or she stands, and much education, training and development is needed for the talent to support the CEO and execute that vision.

Kayser: More than ever, you need a vision that you can share with your employees, a clear direction of where you want to lead the company. But at the same time, more flexibility and agility will be required in order to keep pace with the constant change surrounding us. This is certainly a difficult balancing act.

Wilderotter: CEO roles will continue to evolve based on industry, geography, innovation, disruption and current products, services and business models. These complex organisms require multiple levels of expertise that a CEO must put in place to help him or her navigate unchartered waters. This includes upgrades to and diversity on their board of directors – the best talent working for them that is better than the CEO in their discipline, cultivating a healthy culture that drives innovation, change and input at the front line, and finally, being ‘outside in’ in addition to ‘inside out’ – gathering input and insights from others and taking those learnings and applying them in their own companies.

Maggie Wilderotter is chairman and chief executive officer (CEO) of Grand Reserve Inn. She was CEO of Frontier Communications from November 2004 to April 2015, then executive chairman of the company until April 2016. Ms Wilderotter serves on the boards of Costco Wholesale Corporation, Hewlett Packard Enterprise and Juno Therapeutics, Inc., as well as a number of private and non-profit organisations. She is also a senior adviser to the Blackstone Group. She can be contacted on +1 (203) 614 5299 or by email: maggie@grandreserveinn.com.

Horst J. Kayser has been chief strategy officer at Siemens AG since November 2013. In his capacity as head of corporate strategy, he is responsible for the development of strategy at Siemens. Dr Kayser began his career in 1989 at McKinsey & Company in Germany, Canada and the US, before moving to Siemens in 1995, where he held management positions in various areas and countries. He can be contacted on +49 (0) 89 636 33443.

Susan Stautberg is chairman, chief executive officer (CEO) and co-founder of the WomenCorporateDirectors Foundation (WCD), the largest organisation of women board members globally, which currently has 75 chapters across six continents. Its members represent more than 6500 corporate boards and come together for hundreds of institutes, roundtables and chapter events each year for discussions around best practices and urgent boardroom issues. She can be contacted on +1 (561) 290 0389 or by email: sstautberg@womencorporatedirectors.com.

© Financier Worldwide

THE PANELLISTS

Maggie Wilderotter

Grand Reserve Inn

Dr Horst J. Kayser

Siemens AG

Susan Stautberg

WomenCorporateDirectors Foundation

Operating an effective board

FORUM: CEO challenges in 2017: risk and transformation

Is it worth having good governance?

The value of core values

A moral compass: a guide for leaders

Effective governance for a family enterprise

What makes some organisations great at compliance?

Board succession planning – essential to board effectiveness

Opportunities and risks faced by independent non-executive directors in Hong Kong

Managing an effective board through remuneration policies – an Italian perspective within the European context