Ten Things CEOs Should Know


Ten Things CEOs Should Know

By Mark R. Anderson

CEOs get the weight of the whole company on their shoulders. Although everyone speaks of team effort, it is the CEO’s face that is the company’s face, and, more important, it is the CEO’s brain that leads company strategy.

For this, they are paid way too much, in many cases reminding global citizens of Roman-era excess, and religious cults of the End of Days. Given these enormous rewards, it is surprising that, while these CEOs are usually first-rate at their jobs (and sometimes stunningly so), the majority are, in my opinion, just “OK,” going on “good.”

It is not at all unusual to see these leaders making mistakes. Often these are so large, and so avoidable, that it gives pause: how did that happen?

Why did Cisco’s John Chambers think a telecoms equipment company should get into cute pink consumer video cameras?

Why did Apple’s Steve Jobs think he could beat IBM in the early corporate and enterprise PC markets?

Wy did Microsoft’s Bill Gates think he was bigger than the United States Justice Department?

Why did Carly Fiorina think engineering-driven Hewlett-Packard was all about her personal public-relations effort?

Why did Ray Noorda and Scott McNealy start running Novell and Sun Microsystems as though their primary destiny was defending against Microsoft?

Why did Intel’s Paul Otellini think marketing hype was more important than flagship chip speed?

Why did Steve Ballmer think Microsoft should be in the consumer market?

Why did Jeff Immelt just give China the blueprints to GE’s famed jet engines?

And why did IBM’s Sam Palmisano do the same with the company’s most advanced chip fabrication secrets?

“Hubris” is usually the answer – that, or a lack of good advisors. Sometimes there’s a technical issue, like chip heating; and sometimes there are national (or shareholder) pressures. In any case, it is obvious that CEOs, while perhaps dropping a ball here or there, need to avoid making Serious Major Screwups (SMS’s) that could devastate the company, destroy their legacy, and end in disaster.

For these reasons, I thought it might be helpful in this issue to provide 10 basic recommendations to CEOs that might help them get from the golf course to the boardroom without being hit by pies, eggs, shareholder suits, or Stories Continued on Page 10.

 Ten Things CEOs Should Know:

1. Human-caused climate change is real. If you don’t get this one, don’t bother with the rest. After all, if the planet is trashed, why worry about your stock price? And enough of the “It’s the other guy’s problem” attitude: do you think the citizens of Sendai were just waiting for complete and utter destruction? It happens, whether you care or not.

This is going to drive insurance rates through the roof, upset global food and commodities pricing, create mass migration waves of the dispossessed, and wreak havoc across the globe. How will your business be affected? You’d better figure it out, and then get your company involved in trying to avoid this disaster.

2.The Global Consumer Explosion is on. This is the second most important, large-scale economic trend in the world. Between Asia and South America, Russia and Africa, we will see about 3 billion new consumers entering the global economic marketplace (often via the Internet) in the next century.

How you place your company’s brand, interests, and products or services before this group may well be the prime separator between the good and the great.

The main problem for global CEOs attempting this reach: these populations, while sharing certain predictable traits, are not just alike, nor do they come from similar countries. If Muhammad Yunus can get the Nobel Prize and then be thrown out of Grameen Bank, anyone can get this wrong. This leads specifically to:

 3.Your firm will likely lose money if you go to China. I really should flip this and put it more strongly: according to the Trade Minister of Australia, it is likely that 80% or more of non-Chinese firms operating in-country will lose money in China.

Now that’s interesting, isn’t it? As far as I can tell, the Chinese have every reason to want your investment money and your Intellectual Property, and no intention whatsoever of allowing you to make money. All of those firms that disclosed the former in order to obtain the latter now look like losers.

Yes, there are one or two exceptions, always the same and over-the-top publicized – General Motors, for instance. But there are millions of losers.

Between China’s “Indigenous Innovation” program, forcing government and state-related companies to buy only Chinese goods, made with Chinese IP, using Chinese equipment (no, I’m not kidding) – to a mercantilist policy of crushing foreign competitors, blocking imports, and subsidizing export champions – well, unless you’re Chinese, your name (and your firm’s name) are not on the Buy list. You lose. Better re-assess your global profit plans, by territory.

4.. You should not not try to serve both the Consumer and Enterprise technology markets. There are many seductive reasons that will be whispered into your ear regarding why you – just your company, just this once – will be an exception to this rule. Ignore this advice. You will be so very glad that you did.

Consumer Market DNA and Enterprise DNA do not mix, and they tend not to inhabit the same employee bodies. All of those people you carefully hired to do Mission A in Enterprise will be as useful as umbrellas in a hurricane when Mission B in Consumer hits the first planning meeting agenda. Just don’t bother. Greater leaders than you have tried, and all have ended on the shoals.

5. Innovation is a real creative process, not just a word. Practice it. You almost certainly will do better if the creative, inventive process is alive and well in your company. It needs care and feeding, which means your spiritual and public verbal support, as well as a real budget.

I think there should be a new federal law passed that any CEO who gives a speech using the word “Innovation,” without then actually creating new things, should be stripped, labeled Emperor With No Clothing, and put on morning TV for a week.

Make sure that your actions, and your budget and promotion schemes, match your thoughts and speech on this issue. Doing this right almost guarantees you a seat in the CEO Hall of Fame. Just repeat after me, David Packard, Bill Hewlett, Steve Jobs, Bob Noyce, Andy Grove, Gary Kildall, Craig McCaw, Bill Boeing – yes, it’s a great club, and you should be in it.

6.Protect your company’s IP. Unless you run Coca-Cola, I guarantee you that you are not valuing your company’s intellectual property highly enough, nor protecting it from theft carefully enough. Most CEOs have almost no idea about this on either count.

Let’s start with value. You have a flagship product; let’s call it the Ford Mustang. You have made lots of other products, and tend to value their blueprints all about the same, with the same password protections on your network.

Hint: The value of the Ford Edsel blueprints is not equal to that of the Ford Mustang. The first almost sunk the company, and the second saved it. More important, the latter represented years and years of customer feedback, generations of engineering and design lessons, and – Most Important – decades of failures, all of which informed the Mustang’s winning design.

The value of your company resides in the value of its Intellectual Property, more than anything else. If I am your shareholder, you have a fiduciary duty to me to protect the Crown Jewels of my investment. And I can tell you right now, whether you are running Ford, just robbed of your drivetrain IP by a 10-year employee and Chinese spy, or DuPont, just robbed of your most valuable paint recipe (titanium white) by a Chinese hacker targeting the company’s Taiwan operation – you are not doing enough. No company is.

So, wake up, smell the napalm (in this case, the smell of Advanced Persistent Threats from China, bent on having your IP if you are in an important industry), and do something about it.

7. Countries matter, and the world is not flat. Just as you were reading about the glorious new life of the Global CEO, it would be better to forget what you’ve read and start planning your own book – after you figure things out the right way.

Columnist and author Tom Friedman now appears to be the economist-wannabe fool of all time, missing out on perhaps the largest economic story of the century: the difference between mercantilists and their core plan of export-driven, asymmetric trade, and the more naïve “free-trader” countries that have been their victims for the last few decades.

The role of the global corporations in all of this: not one of ruling the flat world, but of fitting into the plans of each of these countries. Boeing thought it knew what it was doing when it violated its own longstanding internal rule about not taking the crown jewels offshore. Now it faces the simultaneous loss of its largest customer, China, and the conversion of China into becoming its largest competitor.

China’s 919 appears a photocopy of the Boeing 737, the company’s bread- and-butter product. Bad move. I think we will see Boeing now reconsidering the whole “offset” manufacturing program, not because the Dreamliner nose didn’t fit the body (although that’s true), but because of IP theft.

Boeing had an excuse: China made them do it, using Airbus as a competitive threat. Sorry, but it wasn’t worth it. More important: it never is.

Pay attention to country differences, and trade where you should, how you should. Add quality to your quantity sales measurements. Think beyond the quarter. Which leads to:

8. Be prepared for your Chinese competitor. When Google went to China, it was already the market leader in every single country it had entered. There was good reason to think that this might happen in China, too.

Instead, despite its willingness to be censored, the company quickly found itself with two or three native Chinese competitors, from Baidu to Alibaba. (Yahoo! had already tried China and found itself stuffed into a worthless minority ownership position in the company it started – Alibaba.)

Today, Google has been harassed out of the country completely, and Baidu is setting plans to come after it in the global marketplace. Ask Sergey Brin what he thinks of China, and then ask new CEO Larry Page what he plans to do to fight Baidu’s next Android-like operating system for mobiles. What does Boeing CEO McInerney plan to do to fend off the Chinese 919 in global markets? What do Cisco and 3Com and Motorola plan to do to fend of Huawei in global markets, having already seen their IP stolen by this Chinese firm?

U.S. Internet companies, in particular, were unready for the idea that NO non-Chinese Net firm would prosper in China. Nor were they ready for the next export step.

Is your firm ready for its Chinese twin in the global marketplace?


9. You must manage for currency manipulation. This problem started with Japan intervening in the global markets to keep the yen weak for its export champions. Quietly, South Korea joined in. Next came China, with nightly intervention for the same purpose, ensuring its exporters could sell into U.S. and European markets.

Today, everyone is doing it. How can you manage a global company, with serious fractional revenues coming from overseas, if you don’t account for currency manipulations and their resulting shifts in your home-country value?

While your sales may go up or down 10%, look at the Brazilian real vs. the Chinese yuan last year: about a 34% decline.

Be prepared to buffer your losses, either through arbitrage (difficult) or repatriation options (not doing it until convenient), in order to take the risk out of this Wild West shootout.

10. Declining global economic stability is a reality. The days of a relatively stable world are gone, both politically and economically. We should probably say that the days of the post-WWII expansion are officially over, and – in retrospect – have been since perhaps 1997.

This doesn’t mean that you and your firm cannot make money, even lots of it; many companies do their best in times of change. But most do not.

So, manage your company as though China is playing a zero-sum win/lose economic game, as though many Islamic nations and peoples are driven more by religion than by business sense, as though the number of ethnic wars and battles was increasing rather than decreasing, as though the leaders of the U.S. government had lost the ability to have a rational conversation on life-and-death issues.

Things are going to get much more interesting, and you get to figure it all out.

Finally, I think there is an 11th suggestion that almost goes without saying:

In a world made of cynicism, why not be a real hero?

We need it.

Mark R. Anderson is CEO of The Strategic News Service. His newsletter is available at www.stratnews.com

Copyright 2011

Editor's Note: Rule Weary in Seattle

Editor's Note: Rule Weary in Seattle

City regulations may be well meaning, but small businesses are feeling put upon.
David Lee founded FareStart in Seattle to train chefs because he believed the homeless would benefit from “the dignity of preparing food as a vocation.” He launched Field Roast, a producer of vegan “meats,” because he considers the mass industrialization of animals as “a blight on our culture.” He has nurtured a caring culture at his SoDo production facility, remodeling the space so production workers have plenty of space and natural light.
So when Seattle passed a paid-sick-leave law mandating a set number of paid days for sick leave, Lee accepted it. But the results have been disappointing.
“For the first time,” he says, “I have employees lying to me. A medical appointment becomes a paid day off.”
The city’s $15 minimum-wage mandate was another challenge.
“It hurts businesses like ours that compete on a national level against companies in places like Arkansas that pay $7 [an hour],” says Lee. But, wanting to do the right thing, this summer Lee boosted the wages of his employees to $15 an hour four years before he was required to do so under the law.
Seattle can be proud that its $15 minimum-wage law has led the way in driving up wages across the country. And because it is being implemented over seven years and at a time when the local economy is strong, there have been relatively few negative impacts (page 20). Similarly, while there may be widespread abuse of sick leave, there is evidence that the ability of workers to take the time off helps prevent the spread of the flu and other harmful viruses.
But each new layer of regulation is an added burden on business. Now the city is adding yet more regulations — one set that will require businesses to set schedules for employees two weeks in advance and yet another that requires landlords to choose tenants in the order applications are submitted. What’s next? 
A requirement that companies hire employees in the order that they applied?
While each regulation may have some logic to it, the cumulative effect is to make it harder for businesses to fulfill their important role as job creators. The rules can be particularly hard on small businesses without the resources to hire staff to deal with the complications regulations create.
Regulations also create bureaucracy. The Seattle Times reported that to enforce a law requiring landlords to select tenants in the order in which they replied, the city would hire two employees at a cost of $200,000 and launch sting operations. Really?
Meanwhile, the city isn’t enforcing basic sanitation laws to prevent the homeless from leaving excrement on city sidewalks. The Wing Luke Museum of the Asian Pacific American Experience came close to shutting down because an illegal encampment just a block away included “tents serving as drug galleries” that made it unsafe for the museum’s employees and visitors. The problem contributed to the shutting down of the nearby House of Hong restaurant and resulted in negative reviews for the museum on websites like Trip Advisor during the important summer tourist season.
It will be interesting to see if the city’s new director of homelessness, appointed in August at an annual salary of $137,500, can address this expanding problem.
“Clearly, what is happening is that government is forcing business to take on the social imperative,” Lee says.
The altruistic entrepreneur accepts that, up to a point. But the city needs to spend more time attending to basic services. And it has to stop pretending it can solve the world’s problems on the backs of small businesses.
Executive Editor