Marina Gorbis's Blog, page 1317

Strategic Humor: Cartoons from the March 2015 Issue

Enjoy these cartoons from the March issue of HBR, and test your management wit in the HBR Caption Contest. If we choose your caption as the winner, you will be featured in an upcoming magazine issue and win a free Harvard Business Review Press book.

“These aren’t our real numbers, but darn it, they’re the numbers we deserve.”

Paula Pratt

“Give a man a fish, and you feed him for a day. Give him a Kickstarter campaign,

and he can write a bad fishing memoir.”

John Klossner

Scott Arthur Masear

And congratulations to our March caption contest winner, Eric Woodman of Roslindale, Massachusetts. Here’s the winning caption:

“It’s a new transportation start-up called UBear.”

Cartoonist: Crowden Satz

NEW CAPTION CONTEST

Enter your caption for this cartoon in the comments below—you could be featured in an upcoming magazine issue and win a free book. To be considered for this month’s contest, please submit your caption by March 3.

Cartoonist: Crowden Satz

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Your Board Should Be Full of Activists

With more than two centuries of making everything from gunpowder to nylon and Tyvek, Dupont Co. has renewed its product lines many times. Now it is being pressed to renew its governing board as well. Its directors have turned over many times, of course, but Trian Fund Management, led by activist Nelson Peltz, is pressing for far more than a routine remake, demanding four seats of its own choosing at the table. This despite Dupont’s strong results over the past two years, its stock outperforming the S&P 500 index by 47 percent. Dupont did not give in to Nelson Pelz’s demands, but .

Activist investors waged a record number of campaigns against U.S. companies in 2014 and show no signs of letting up in 2015. Among their trophies in 2014 was a complete housecleaning at Darden Restaurants, the largest operator of full-service restaurants in the U.S. When Darden directors backed a spin-off that many owners opposed, Starboard Capital—with the support of many institutional investors—led the ouster of the entire board. Much the same occurred at Canadian Pacific Railway in 2012, when Pershing Square Capital Management acquired control of its board.

This is a good time to renew your board before an outside activist tries to change it. Here’s why. The backing of the traditionalists like Vanguard Group is often giving activists like Trian — the latter with just 2.7% of DuPont’s shares — the extra clout they need. Vanguard holds more than $3 trillion in assets, making it the equivalent of the world’s fifth largest country in GDP, ahead of France. Along with its heavyweight brethren like Fidelity and Blackrock, it packs enormous punch. Vanguard owns some 5% of most publicly-traded companies in the U.S., and with half of its fund assets indexed, it is not going anywhere if it does not like its portfolios’ strategies or results. But that does mean indexed investors will remain passive if a company’s strategy could be strengthened or its results could be better.

To the contrary, said Vanguard CEO William McNabb, this is “precisely why we care so much about good governance.” Good means directors who exercise independent oversight and who are deeply engaged in the company’s long-term strategy. Consider what the board of General Electric has declared as its criteria for new directors. In its 2013 proxy statement, GE announced that it is searching for director candidates who will bring technology, marketing, finance — and “leadership” experience to the boardroom. “We believe,” explained the GE board, that “directors who have held significant leadership positions, especially CEO positions, over an extended period, provide the company with unique insights.”

We are reminded yet again that the chief executive is no longer the sole leader of the enterprise. In recent years, the competitive fires of capitalism have been pushing directors to the fore as well. If individual directors are not adding real value to the firm’s leadership, especially in the eyes of institutional investors, this is an opportune moment time to recruit directors who will.

To that end, dialogue between directors and investors should be part of the equation too, including activists. We are personally familiar with several companies whose boards now routinely vet director candidates with their major shareholders before their names are placed on the proxy. But directors will certainly want to retain final authority, seeking guidance but surrendering nothing.

Vanguard CEO McNabb even advocates forming a “Shareholder-Director Exchange” and for boards to create a “Shareholder Relations Committee” to facilitate such dialogues. “You, as directors, have a great opportunity to tell us how you bring value to investors,” he said, and since “we are your permanent investors,” we “want to listen.”

We would take that further. Instead of waiting for an activist to force their agents into a boardroom with the avowed purpose of redirecting strategy — as happened at Darden Restaurants — why not have the board leader, whether chair or lead director, preemptively strike? Spearheading a board’s own renewal calls for more carefully considering who comes on to the board, who remains on the board, and above all how the board is organized and led as an active strategic partner of management.

Glenn Tilton, former CEO of Texaco and United Airlines and director of Abbott Laboratories, AbbVie, and Phillips 66, well captured the point. From his own experience, he told us, board leaders and chief executives could make far better use of their board. They should insist that every director is deeply informed and keenly contributing to the company’s strategy and risk management. When he was running United Airlines, for instance, he asked directors to accompany him on calls to customer CEOs to demonstrate the directors’ personal commitment to the company’s turnaround.

We should thus think of activism, Tilton concluded, in a very different way. Simply put, he said to us, the “board leader should instead be the activist.” And everybody on the team should be savvy on strategy. “Does the talent around the board table,” he would ask as board leader, “reflect all the success determinants for the company, and the risks that can derail it?” Former CEOs bring a lot, he has found, as do experts on risk management. “I want to look down the board table and see a set of directors every bit as good,” he said, “as top management.” And to bring that out, he would go around the table and ask each director for informed direction at pivot points, allowing no place for the uninformed to hide.

Raj Gupta, former CEO of Rohm and Haas who has served on the boards of Delphi Automotive, Hewlett-Packard, Tyco, and Vanguard, urged that directors look at their firm from the “outside in” rather than “inside out,” posing the same questions that an activist investor would ask. Is the company’s portfolio too complex? Is management top-notch? Is the cost structure too high? Has the firm missed an inflection point?

The board, in short, Gupta told us, “should think like an activist.” So should top management, but Gupta also cautioned that this requires more from both. Unlike activists, directors and executives cannot forego long-term thinking. “Boards need to step up their game by asking the right questions,” he said, and for that they need directors on the board who can answer those questions and a culture in the board that focuses on them now — and also ten years out.

Whatever the particulars, with the proxy season approaching, this is an opportune moment for the board leader to bring activism home by becoming the board’s own Activist in Chief and for directors to ask the outside-in questions of themselves.

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How Power Affects Your Productivity

Think about the last time you came home from work completely and totally drained. I don’t mean the good kind of tired, when you’ve worked hard and gotten something done. I’m talking about exhaustion, colored by frustration and tinged with anger. Maybe you even felt hopeless. You were fed up, trying to be nice but snapping at family, wanting nothing more than to crawl into bed (or dive into a bottle of wine). If you’re like me, feeling pissed off and hopeless isn’t your natural state. And for those of us who love our work, feeling negative is doubly painful because it just shouldn’t be this way.

Sadly, though, we spend far too much time and energy dealing with destructive emotions at work — which is no doubt part of the reason so many people are disengaged. It’s also the reason why we often don’t live up to our full potential. When we’re stuck in a dissonant state, we lose our capacity for mindful learning. We don’t process data as quickly or well, and we make bad decisions. We aren’t very creative and we don’t adapt as the world around us changes. We don’t focus, so we don’t get as much done. In short, negative emotions make us less productive.

You and Your Team



Getting More Work Done


How to be more productive at work.

Then there is the stress. Toxic emotions affect our capacity to manage ourselves. There’s also increasing evidence that in mice — and people too — stress decreases our capacity for empathy. All in all, pervasive negative emotions impact how smart we are, not to mention our emotional intelligence.

What can we do? First, let’s face it: we’ve got to do something. Dissonance is an epidemic in our organizations. Why? Pressure, change, too much work, too few resources — sure, these all affect us, but let’s look at what we can control, starting with how we manage power.

Power, not money, is the real currency in organizations. It gets us what we need to stay “alive”. The strongest people make the calls, show us the way to go. And whether we admit it or not, most people want to be seen as powerful. There are lots of ways to at work, some that generate positive emotions, and some that aren’t so good. Healthy ways include striving to be the best at building a great team, and being at the center of information flows. When we wield these kinds of power, we feel pretty good about ourselves, and people trust and want to follow us.

Unfortunately, lots of people either don’t know how to get and keep power in positive ways, or they deliberately engage in destructive, even Machiavellian behaviors. They end up withholding information others need, stirring up trouble, and generally wreaking havoc.

Faced with people who are bad at handling power, we feel our jobs – and therefore our lives — are threatened, and we go into survival mode. We shut out everything in the environment except what we think we need to stay safe. Adaptability? Gone. Creativity? Snuffed out. Ability to take in information and make sense of chaos? Nope.

It isn’t easy learning how to deal with your own and other people’s power while maintaining positive relationships and a sense of personal safety and integrity. But it can be done. First, you need to do a gut check. How do you feel about power? Do you shy away from commanding people? Fight authority? Or conversely, are you constantly seeking the safety of someone else’s shadow? Clearly none of these is a healthy or effective approach. But in truth, many people are either caught in dysfunctional dependency upon people with power, or they are counter-dependent — fighting against them — just to prove they can win. These reactions stem from childhood and all of those old messages about how we should deal with authority. It’s a really good idea to do a bit of thinking about those old assumptions — do they still serve you? If not, it may be time to change. Awareness isn’t everything, of course. But honestly assessing your deep feelings and reactions is a good first step on the path to dealing with negative emotions at work.

For leaders, deepening your self-awareness will help you acknowledge that people see you as powerful (and maybe even a bit scary). Never forget for a moment that your whisper is a shout. As far as your employees are concerned, you hold their fate in your hands, and your emotions spread easily to them. In the end, knowing how to use your power will enable you to consciously choose to create a climate in which everyone can be and do their best.

Let’s not give in to the dissonance that has become the default in so many companies. Let’s take charge — of ourselves, first.

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Larry Summers on What Business Can Do to Save the Middle Class

There’s growing recognition that CEOs are paid too much, that shareholders are pocketing too large a share of corporate profits, and that high levels of inequality are bad for economic growth. The case for paying workers more keeps getting made — again, and again, and again — and yet the gap between the rich and the rest continues to grow, within countries and companies alike.

Rising income inequality is a feature of most advanced economies, and yet we seem hard-pressed to do anything about it.

Enter a new report from the Center for American Progress, co-led by Larry Summers, the Harvard economist, and Ed Balls, a Member of the British Parliament. Their answer to inequality and stagnant living standards is “inclusive prosperity,” an economic agenda centered around middle-class growth.

I asked Summers about his proposals, and business’s role in implementing them. A condensed and edited version of our conversation follows.

What is inclusive prosperity and why should executives and business owners care about it?  

Inclusive prosperity refers to the idea that growth — growth that is inclusive, that benefits the middle class — is essential if nations are going to flourish.

Without middle class growth, institutions lose legitimacy. The American example is degraded. The ground is fertile for populist revolt. The debt becomes much more difficult to manage and cynicism corrodes the functioning of the society.

I think it is a lesson of history that businesses succeed or fail with nations. It is very difficult for any company to be highly successful based in a country whose national economy is stagnating. And it is much easier for businesses to succeed when a society is functioning well.

Can the private sector create a more inclusive economy or is it up to policymakers to solve the problem?

The right public frameworks are in the interest of the majority of businesses that very much want to do the right thing. That means cracking down on tax shelters that give some businesses a competitive advantage. That means strengthening regulation where some businesses are putting competitive pressure on others by skimping on safety, by denying workers basic benefits, or by operating with dangerous degrees of leverage. Support for making certain benefits like family leave universal serves the interests of good employers against ruthless employers who may seek to gain advantage by skimping on basic benefits.

What would change about the relationship between firms and workers in a more inclusive economy?

I think we need to encourage employers to make decisions based on something other than the ruthless reduction of costs. During the time I was president of Harvard, we instituted a policy that if the university outsourced a function like, for example, janitorial services or cafeteria services, those to whom it outsourced had to pay the same wages that the university paid. That did not mean we were biased against outsourcing if it was more efficient, but it did mean that we were leveling the playing field and did not permit outsourcing to gain advantage simply by holding down wages.

I would hope that businesses would increasingly see the need to invest first in their own interest in their workforces. Study after study suggests that programs of family leave reduce workers’ stress and permit workers to continue working in ways that benefit not just the worker but also their employer.

I also think that businesses need to contemplate their relationship with their workforces in other ways. Experience suggests that where workers are empowered, given more voice to shape the terms of their employment and the way in which they work, productivity very often increases.

There’s an increasing body of evidence suggesting the desirability of profit-sharing as a way of enfranchising and motivating workers. And there is even some increasing suggestion in the data that corporate leaders who maintain a philosophy of teamwork where, for example, pay differences within a firm are limited and where everyone shares in success and failure, get better results.

What about the role of more traditional unionization and collective bargaining?

I think that one has to maintain a sense of balance. Unions are right in some employment contexts. Unions do not add value in other employment contexts.

What I think is important is the principle enshrined in U.S. law that workers should have the right to collectively bargain if that is what they desire. I am concerned that in recent times that right has eroded because employers have been permitted to retaliate against those who seek to organize workers with impunity.

At the same time, I would be the first to recognize that in a world where American businesses are competing very vigorously with foreign competitors, in a world where domestic competition has increased substantially, prudent union leaders will need to recognize that they need to cooperate with management to craft employment arrangements that better serve workers, but also serve the objectives of competitiveness and economic efficiency.

I think there’s substantial scope for thinking about new compacts between firms and workers in the mutual interest of both.

What about freelancing and the sharing economy and the idea that the contract between companies and workers is changing?

I’m a believer in the sharing economy. I feel proud to serve on the board of Lending Club. I certainly see enormous efficiencies coming and improvements in economic performance coming from efforts to deploy the economies of housing resources more efficiently through firms like Airbnb or transportation resources more efficiently through firms like Uber and Lift.

I believe that much of the way capitalism moves forward is through organizational innovation as well as through technological innovation and the so-called sharing economy represents an important example of that.

At the same time, in crafting our social institutions we need to recognize that if workers are going to have more flexible terms of employment, are going to work in many cases more irregularly and for different employers, that the provision of a basic social safety net is something that’s going to be done less by employers and that there will be a role for government in picking up the slack. I think that recognition has to inform the approaches that we take.

How does corporate governance need to change in your view?

I was struck that in a panel discussion at Davos the FT journalist Martin Wolf asked those present what fraction of them felt that share value maximization was in the interests of the broader economy.

At Davos, hardly a Marxist redoubt, 70% of those who answered the question initially said they felt that it was not, as currently practiced, in the long run interests of economies.

I believe in general that property rights are immensely important and I support the idea that businesses should be run for the benefit their owners. And I think that efforts to align those who are managing business with the interests of shareholder owners are for the most part a positive thing.

But I have the concern that as currently practiced, our institutions provide overly high-powered incentives for taking steps that will benefit share prices in the very short run and insufficient incentives for taking steps that will benefit the company and both shareholders and stakeholders over the long run. I think this tendency has been exacerbated by some of the extremes of activism that we have witnessed in recent years where activists have sought to disrupt or restructure companies for the sake of an immediate payout even at some sacrifice of long-run interests.

I am sympathetic to proposals for staggered boards of directors to make activists’ attacks more difficult. I am sympathetic to proposals to provide particular protections for long-term holders of companies who can serve as validators that management’s long-term investment plans are in fact in the interests of corporate shareholders.

The ruthless short-run Darwinianism of the activists is not the way forward. Neither, though, is the belief that management should be entirely trusted independent of the results they have generated. What we need is to find a way of empowering active, critical, but patient board members for our leading corporations.

Anything else you’d like to add?

Just one thing. John Kennedy in his inaugural address famously said, “Ask not what your country can do for you, ask what you can do for your country.”

That was a reasonable thing to say that called forth a great response at a time when American middle-class standards of living had grown rapidly. When millions of families were enjoying the benefits of the interstate highway system. When a generation had been educated by the GI Bill. When millions of families were fulfilling their version of the American Dream by living in their home in the suburbs thanks to the FHA and a range of successful public investments.

If it’s much more difficult to call on Americans today, that is importantly a reflection of the failure of the national economy to deliver rising standards of living in the way that it once did for the middle class.

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Uber Needs Our Permission to Grow

Last week, I fielded an inquiry from a New York Times reporter asking if I would like to comment on the apparent change of heart (and strategy) underway at Uber. You know, the new “kinder, gentler” Uber — the Uber that is eager to collaborate with local governments, and to calculate its contribution to sustainability and to getting cars off the road, the one that is serious about beefing up its safeguards on access to rider data. At first blush, this was a highly unlikely subject for me to weigh in on: I am just about the only person I know who is not gaga over the Uber experience. Nor am I a fan of its pugnacious approach even to regulations as outdated as those governing the taxi industry — what CEO Travis Kalanick has called Uber’s stance of “principled confrontation.”

While I was an unlikely commentator from one perspective, I was well-suited from another. I am a firm believer that companies need society’s permission to grow, and it would appear that Mr. Kalanick and the management team at Uber are coming to this realization as well. This notion of “permission to grow” did not originate with me. I first picked it up in correspondence I was fortunate enough to have carried on with Alfred Chandler (yes, that Alfred Chandler) almost 20 years ago, in the course of writing a book. This was a good old-fashioned exchange of typewritten, snail-mailed letters — Dr. Chandler’s preferred medium. He and I were discussing Wal-Mart’s prospects, as I recall, and whether the company could succeed in resetting our collective understanding of the size that a retailer could attain. So what were the limits to its growth: Adequate labor pool? Attractive retail locations? Sizable acquisition targets? Proximity of adjacent planets? He wrote in one of those letters (How I wish I’d kept it!), “Companies need society’s permission to grow.” Mind you, this was well before Wal-Mart management rolled out its kinder, gentler vision (“Save money. Live better.”).

Companies need society’s permission to grow. We see this demonstrated both in the antitrust courts and in the courts of public opinion. The most extreme proof of this axiom is, of course, our reaction to “unreasonable” monopoly, as expressed in the breakup of the Standard Oil group in the first decades of the last century. There are abundant examples across the intervening years: following World War II, Dow was forced to share its proprietary processes for manufacture of magnesium and synthetic rubber, setting the company back a decade in the view of company officials. DuPont was forced to dissolve its patent-pooling arrangements with foreign chemical firms and disgorge its cross-holdings in GM stock, devastating both its top and bottom lines. And in more recent experience, of course, we have witnessed the seemingly never-ending antitrust battles of Microsoft and the constant, uneasy attentiveness of Facebook management to the data privacy concerns of its users. The management teams of all of these companies became aware—sooner or later—of a simple, compelling truth: When society withdraws its permission for a company to grow, that growth can stop dead in its tracks.

Today we call the withdrawal of this permission “reputation risk” — how favorably a company’s motives, impact, and agency are regarded by important external constituencies. A good reputation can lead to a whole host of benefits; a bad reputation, on the other hand, can lead to a loss of customers, disengaged and unmotivated employees, and shareholder dissatisfaction. Whatever form Uber’s risk management dashboard takes, it is clear that the reputation risk hazard lights have been flashing red for some time now. Conflicts with government, here and abroad; legitimate, frightening concerns over rider safety; data privacy violations — these are the kinds of risks that Dr. Chandler was warning us about, risks that by their nature flare up suddenly, unexpectedly and painfully. At the very least, they pose a huge distraction to management.

And on this issue of management distraction, and organizational maturity, it is instructive to remember that Uber is impossibly young for all it has achieved. The company is only five years old (only five years old!), with thousands of employees, tens of thousands of drivers, a $40 billion valuation and global growth ambitions. The company is like an adult in an adolescent’s body, and so it is unsurprising that they should be suffering these growing pains. They have a lot of growing up to do — and in a hurry.

It seems fairly clear from the recent shift in strategy that this young management team has concluded that the last thing it needs is rearguard battles with regulators and customers when the road ahead presents such enormous challenges. And make no mistake, the immediate future for Uber promises to be much, much harder than the recent past. Their business model is in full view, ready to be copied; they have spawned a whole host of aspiring disruptors coming up underneath and seeking to topple them; and the investors who have bestowed such a rich valuation on the company will be incredibly sensitive to any bumps in its growth performance. Oh, and their employees — particularly their most valued employees — have ample alternative employment options. Given the choice, would you work for a pariah?

If Uber were a case study, it would fit perfectly in the course we teach at HBS, called “Building and Sustaining a Successful Enterprise,” because we are watching in real time as the management team digests a lesson that has been learned time and again by successful enterprises before them. If you had to distill our teaching down to a couple of sentences, they would read as follows: In order to build a successful enterprise, you need to have a remarkably well-integrated business model and capability set, focused on an important job that your customers are trying to get done. In order to sustain that success, however, you need the wisdom and humility to adapt when the capabilities and behaviors that earned you your initial success will no longer take you where you need to go. Calling that turn is the lonely, necessary lot of the leader.

So has Uber management spotted the inflection point early enough? My guess is that they have, and here’s my reasoning: We’d know it was too late if the question weren’t so engaging—if we’d all moved on to Lyft or Sidecar or any one of the dozens of similar upstarts. The fact that we’re all somewhat surprised by this new conciliatory stance of theirs—even wondering if it was really necessary—suggests that they’ve likely gotten the timing about right. If the Uber management team truly understands that they’ve outgrown the behaviors that served them well as an upstart, and they’re able to develop a new set of skills and behaviors more suited to the requirements of their current scale and future ambitions, then they might still have the ability to surprise us with how fully they have earned the permission that we have granted them, and with the impact that they can have on the world.

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There’s No Such Thing as Anonymous Data

Photo by Andrew Nguyen

About a decade ago, a hacker said to me, flatly, “Assume every card in your wallet is compromised, and proceed accordingly.” He was right. Consumers have adapted to a steady thrum of data breach notifications, random credit card charges, and out-of-the-blue card replacements. A privacy-industrial complex has sprung up from this — technology, services, and policies all aimed at trying to protect data while allowing it to flow freely enough to keep the modern electronic bazaar thriving. A key strategy in this has been to “scrub” data, which means removing personally identifiable information (PII) so that even if someone did access it, they couldn’t connect it to an individual.

So much for all that.

In a paper published in Science last week, MIT scientist Yves-Alexandre de Montjoye shows that anonymous credit card data can be reverse engineered to identify individuals’ transactions, a finding which calls into question many of the policies developed to protect consumers and forces data scientists to reconsider the policies and ethics that guide how they use large datasets.

De Montjoye and colleagues examined three months of credit card transactions for 1.1 million people, all of which had been scrubbed of any PII. Still, 90% of the time he managed to identify individuals in the dataset using the date and location of just four of their transactions. By adding knowledge of the price of the transactions, he increased “reidentification” (the academic term for spotting an individual in anonymized data) to 94%. Additionally, women were easier to reidentify than men, and reidentification ability increased with income of the consumer.

To be clear: Reidentification means that the researchers could identify all the transactions that belong to an individual, but de Montjoye didn’t attempt to say which individual. For example, if he wanted to know my transactions, he’d need to take additional steps to cross reference something he knew about me to his data. If, for example, I posted on Facebook about a trip to a restaurant, that could provide the key to connecting me to an entire portfolio of anonymous transactions. “We didn’t try to put names on it,” de Montjoye says, “but we know basically what you need to do that.”

What’s more, de Montjoye showed that even “coarse” data provides “little anonymity.” He lowered the “resolution” on his data by looking only at areas where purchases happened, not specific shops, and 15-day time frames in which they happened, not specific dates. He also broadened the price range of the purchases so that transactions that previously were categorized as between $5 and $16 were now put in a bin more than twice as big that ranged between $5 and $34. Even with low-res data like this, he could pluck out four transactions and reidentify individuals 15% of the time. By looking at 10 such data points, he could, remarkably, reidentify individuals 80% of the time.

It’s not the first time de Montjoye has played the part of privacy killjoy. In previous work he pulled off a similar trick, reidentifying individuals using anonymous mobile phone location data. (Others have performed similar parlor tricks with other datasets.) And while he hasn’t yet tested other types of large datasets, such as browsing histories, he believes that “it seems likely” that they, too, are susceptible to reidentification.

The implications of de Montjoye’s work are profound. Broadly, it means that anonymity doesn’t ensure privacy, which could render toothless many of the world’s laws and regulations around consumer privacy. Guaranteeing anonymity (that is, the removal of PII) in exchange for being able to freely collect and use data — a bread-and-butter marketing policy for everyone from app makers, to credit card companies — might not be enforceable if anonymity can be hacked. Anonymization as we define it today, de Montjoye says, is “inadequate” and ultimately doomed to fail with large metadata — the kind of publicly available big data that so many companies are tapping into. (He won’t use the term “big data,” but what he describes as “metadata datasets” are largely in line with that concept).

One obvious response to this problem, being explored in Europe, is to make anyone who wants to use such data prove that they’ve made it impossible to identify individuals within the dataset. But if de Montjoye can identify four out of five people from anonymous data with only a general sense of where they were, when they were there, and how much they spent, it’s hard to imagine someone proving beyond a doubt they’ve anonymized their data. That kind of mandate, then, could ultimately prohibit the use and sharing of data.

That would be a terrible outcome given the power of the kinds of large datasets de Montjoye is testing. “The potential for good that comes from this kind of data is too great to shut it down,” he says, citing any number of cases: Mobile data can be used in the fight against the spread of disease. Traffic data can enable smarter traffic systems that significantly reduce emissions. Economic data tracking can help identify opportunities for innovation and growth.

One model de Montjoye cites is “PII 2.0” (PDF) proposed by Paul M. Schwarz and Daniel Solove. Currently, PII is binary and information is either personally identifiable or not. Schwarz and Solove propose a spectrum from those two ends, with a third category in between, in which identification is possible but not probable, and then regulation that addresses each type separately.

de Montjoye also looks to the “New Deal on Data” proposed by MIT’s Sandy Pentland (a co-author on de Montjoye’s paper) in which ownership rights of data shift to the consumer.

“Our goal is to start a debate, not shut down the use of this kind of data,” says de Montjoye. “This is a potential risk with these large datasets; anonymization is limited, but the potential uses for this data are great. So let’s find a better model. Let’s find a balance between privacy and utility.”

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How Do You Rank the World’s Best CEOs?

How do you measure a CEO’s impact? An HBR team recently addressed that question by ranking CEOs according to the increases their companies have seen in total shareholder return and market capitalization across their whole tenures. HBR’s resulting list of the 100 Global CEOs who have delivered the best financial results, published in its November 2014 issue, placed Amazon.com’s Jeff Bezos squarely at the top.

There’s no doubt that Mr. Bezos has done well for the company he founded. And clearly CEOs can and should be judged by the financial results they generate. But increasingly, CEOs and their companies are also being called to account for their impacts on employees, communities, governments, and society at large. The changing expectations have magnified the relevance of non-financial metrics and the need to paint a more complete picture of a CEO’s performance.

Companies now need to understand what value they are creating, not only for their investors, but also for their employees, customers, and society at large – and they need to know how their reputations reflect this net value creation. This is why Reputation Institute regularly surveys people around the world about their perceptions of companies, and produces a ranking on this score. It’s also why, since 2000, individual companies have consulted the Institute to gain a deeper understanding of how well they are regarded on non-financial metrics – and why. To develop consistent and reliable data, we rely on a scientifically developed and standardized survey instrument designed to gauge public perceptions of companies on seven dimensions: finance, leadership, workplace, citizenship, governance, products, and innovation. We call it the RepTrak scorecard.

When HBR invited Reputation Institute to add a nonfinancial perspective to its top 100 CEOs coverage, our team of researchers, led by Dr. Leonard Ponzi, Brad Hecht, and Viktoria Sadlovska, began with the RepTrak methodology, and created a special “non-financial performance index” using a subset of its categories – specifically, the scores for each company’s workplace, citizenship, and governance. Based on those scores, we reranked HBR’s list. (Note the caveat that our data reflect perceptions of companies, not individual CEOs. The assumption here is that, because most of these value-adding leaders have had substantial tenures, the reputations of the firms, no less than their financial success, reflect these individuals’ leadership. )

Next, we set out to examine more closely the relationship between HBR’s financial indicators and our non-financial indicators of performance.

Based on our past research, we thought it likely that companies with higher reputations would tend to financially outperform those with lower reputations. On average, we have found that high-reputation companies have higher returns (both Return on Assets and Return on Equity), deliver higher earnings multiples, have higher market/book ratios, and have a higher Enterprise Value/EBITDA ratio – the key measures on which investors assess corporate performance.

But the scatterplot presented below demonstrates clearly that, within this set of top CEOs’ companies, there is not a linear relationship between financial and non-financial measures of performance; companies that deliver strong financial results do not always have good reputations with the public, and vice versa.

Look, for instance at the company names in the lower-right quadrant – the ones who did well financially but not so well on reputation. Monsanto is a case in point, its CEO ranked #8 on HBR’s financially based ranking, despite having the weakest reputation of all the companies. Meanwhile the upper-left quadrant of the chart is also well populated. These are the companies earning the highest public respect, but turning in lower financial results. (Again, let’s keep in mind that all these companies are financial high performers in the greater scheme of things; otherwise they would not be on HBR’s list.) Germany’s car manufacturer Volkswagen stands out in this regard, as does France’s food giant Danone. Both of their CEOs were well down the list of HBR’s top 100, but have managed to win their companies high praise from the public on non-financial criteria. In general, the broad dispersion across quadrants shows that financial and non-financial metrics provide different points of view on a CEO’s performance.

This nonlinearity of course complicates the question of how one would arrive at a “net” assessment of a CEO’s legacy. How much weight should each ranking get? Should financial and non-financial criteria matter equally, or should they be weighted differently? More weight given to the financial or more to the non-financial?

We would argue that the truer measure of CEOs’ legacies is the amount of “public support” they helped to create for their companies during their tenures – the changes in people’s willingness to recommend, work for, buy products from, or invest in their companies. In fact, this is a measure that Reputation Institute regularly captures in its public surveys. And we have calculated the relative statistical contribution that financial and non-financial criteria make in predicting this index of public support. Our statistical analysis suggests that some 35% of a CEO’s legacy can be explained by financial performance, with the remaining 65% by non-financial criteria.

Thus, to assess these CEOs’ full legacies, we developed a combined ranking based on weighting the financial and non-financial performance rankings used in the scatterplot. Take a look at the table below. The second column in it is the original ranking released by HBR based on financial performance. The third column is the re-ranking of the same set based purely on reputations in non-financial (that is, “social”) performance areas. The first column is the ranking of CEOs that Reputation Institute arrives at by applying our weighted combination of the two. (And we’ve added a fourth column to highlight whose ranks change most.)

Now who rises to the top? CEOs one and two, as you can see in the overall rankings column, are Novo Nordisk’s CEO Lars Sorensen and American Tower’s CEO James Taiclet. Volkswagen’s Martin Winterkorn leaps up 68 slots to 21st thanks to favorable non-financial results. Disney’s Bob Iger also rises dramatically (from 60th to 10th) as do the CEOs of Fastenal, Alfa Laval, and Antofagasta. Starbucks’s Howard Schultz moves up from 54th to 14th place, reflecting a well-balanced commitment to governance, citizenship, workplace, and financial performance. Amazon’s Jeff Bezos drops only slightly from 1st place in HBR’s original ranking to a robust 3rd in the combined ranking.

Some CEOs see significant drops in ranking when we factor in the weak non-financial performance reputations of their companies. They include Japan’s Fast Retailing, and Taiwan’s MediaTek. Monsanto’s Hugh Grant suffers most heavily when ranked by this more holistic assessment of how his company has fared under his leadership. It drives down the assessment of his legacy from a lofty 8th to a more remote 82nd place in the adjusted ranking. Perhaps he has decided Monsanto must do more to boost its non-financial performance reputation; within the past few years, the company joined the World Business Council for Sustainable Development (WBCSD) and started offering Business Ecosystems Training globally to its employees.

The fact that financial performance and nonfinancial performance reputation do not correlate among HBR’s top 100 CEOs underscores why it is so important to keep refining our non-financial metrics and ensuring their rigor. And if both kinds of metrics are important to take the measure of a company, they may matter even more to assessments of a CEO’s tenure. The most holistic measure of a CEO’s contribution over his or her tenure would be a reliable answer to one question: How much better or worse is the overall reputation of the company compared to the day this leader stepped into the role?  A great CEO’s legacy is never as one-dimensional as the ledger.

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The Biggest U.S. Health Care Challenges Are Management Challenges

Few health care leaders would disagree that the U.S. health care industry needs to drastically change. But do we have leaders in place who have the courage to raise their hand and lead the charge? In the classical theory of disruption, reform from within is almost impossible. It is hungry, fast-moving new entrants that upend slumbering incumbents. But at athenahealth, we’re seeing early signs of another possibility; more than any time in recent memory, provider groups themselves are preparing to do the disrupting.

Over the past two years, we’ve convened health care leaders at roundtables and other events to discuss the challenges and opportunities they face, both inside their organization and from the external market. As part of this process, we formally surveyed more than 150 executives; the sample represented a broad cross-section of health care, with respondents serving in leadership roles at organizations as diverse as physician practices, hospitalist staffing agencies and large health systems. What we found was a remarkable portrait of courage — a willingness to abandon the status quo in favor of an uncertain path.

In the survey more than 70% of participants reported that they felt their organization was well positioned for future success, with about 15% strongly agreeing with that sentiment. More than three-quarters said they are on a good path to successfully compete in their local markets. Fear of aggressive new competition is minimal, with only 3% of survey participants saying they feel very unprepared relative to their markets.

But this optimism is not a sign of complacency. More than half of the executives we surveyed believe their operational model is in need of change and disruption. At any other time or in any other industry, these results would seem contradictory. After all, we expect incumbents to feel most confident about the future when they believe their operating models are sustainable — and to fear extinction when disruption is on the march.

In healthcare, however, an instinct to disrupt existing models makes perfect sense. From every quarter, the industry is under pressure to cut costs and improve quality and the debate around the Affordable Care Act has crystallized the need for reform; many providers are leading the charge, moving further and faster to redesign care delivery than the law requires. Many health care leaders understand that there will be little room in the health care landscape of the next decade for laggards. These leaders may feel confident about their strategic direction, but they know their current models won’t get them where they need to go. Thus they need to become their own disruptors.

We asked our roundtable members where they hope to be in five years — and received an array of responses that all pointed toward disruption. One participant, the CEO of a staffing organization for hospital emergency departments, is looking beyond emergency care. “We hope to become a recognized leader in integrating physician care across transitions of care,” he told us — even though, ultimately, better care transitions will mean fewer E.D. admissions, which would threaten his existing business model.

The chief strategy officer of a west-coast medical center we surveyed is confronting a future in which her organization’s current strategy — top-quality tertiary and quaternary care — would be less competitive. “We need to position our enterprise for a post-reform era,” she told us, which means “moving from a tertiary/quaternary care model only to a dual strategy in which we are also a population health manager.” Rather than fearing the population health managers who would erode this organization’s high-margin business in complex surgeries, this strategy officer plans to join them — and reap the rewards of shifting from payment based on patient volume to payment based on delivering value.

Generally we found the respondents clear-eyed about the difficulty of changing course. One CEO of a large Midwestern health system reminded us that his system is already a Medicare ACO (Accountable Care Organization), and he and his colleagues are “positioned well in our thinking” about the future. But, he said, “we are not positioned well in some of our operating fundamentals such as infrastructure, analytics, process, and compensation models.”

The overwhelming sentiment among our roundtable participants was that the impediments to change are mostly internal. Less than a fifth of respondents said that market competition is the primary challenge they face in addressing the ongoing shift from volume-based to value-based payment. A similar share said that outdated or ineffective IT infrastructure is their major roadblock, and almost two-thirds identified either cultural resistance or misalignment with physicians as their biggest obstacle. One executive told us that his greatest challenge is persuading the “59-year-old physician who recognizes that things are changing but is hoping he or she can hang on.”

Overcoming such challenges requires intrepid leadership. Respondents to our survey said they are scanning widely for models of executives who have successfully disrupted their own organizations. When we asked which companies health care executives most admire, the top choice wasn’t Mayo, Cleveland Clinic, or any other blue chip health care institution. It was Apple: the tech giant with a history of cannibalizing its own products before a competitor does and  promoting disruption before being overtaken by it.

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How to Protect Your Time Without Alienating Your Network

It’s a law of nature: the further you rise, the more people will make demands on your time. Some of those requests are self-interested: the informational interview, the job advice, the request for a connection, a recommendation letter, or angel funding. Others may be quite beneficial to you: the offer of a paid speaking engagement, or a prestigious media interview opportunity, or an invitation to an exclusive conference. The easy answer is to ignore all of these requests, deleting them as they come in — or even more extreme, declare some form of email bankruptcy. But, of course, that risks alienating some of your biggest advocates.

I feel genuine empathy for one top business thinker with whom I had a heart-to-heart at a conference a couple of years ago. She was overwhelmed and miserable with the amount of correspondence she received; it literally pained her. Her answer? She pretty much ignored everything including my follow-up requests to interview her for a (very well-read) publication and, later, to endorse my forthcoming book. I know she’s busy and I like her a lot, but total silence is not the mark of a friend, or even a passing-grade acquaintance. So how can you protect your time – and accomplish your more pressing priorities – without being a jerk to allies? Here are three strategies.

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Scale your time. I’m fortunate that there are plenty of people who’d like to connect with me for meals or drinks or coffee: it’s a good problem to have. The downside, of course, is that I don’t have time for every request. Yesterday, I received an email from a Wharton School student who had attended a guest lecture I’d given there 18 months ago. Very politely, he thanked me for my talk, shared how he’d been implementing my suggestions, and then asked if I could “spend 20-30 minutes on the phone for a few points on how” he can best take advantage of a new opportunity. He sounds terrific and I’d like to help, but it’s just not feasible to do this for every student who requests it. Instead, I’m going to follow a tip that tech opinion leader Robert Scoble shared with me when I interviewed him for my forthcoming book, Stand Out. Instead of responding to emails one at a time, Scoble asks his interlocutors to post their questions on Quora, so that others can see and benefit from his responses. I won’t use Quora, but I’ll ask the student to email me his question, I’ll respond back electronically, and will later turn it into a blog post. Similarly, instead of one-on-one coffees, I’ll often organize dinners to bring together interesting groups of people who could also benefit from knowing one another.

Don’t overestimate your own importance. I’d been convening a series of such dinners in New York City for a number of months, bringing together authors to meet each other, make connections, talk about book marketing, and the like. When I realized a mutual friend knew one thinker I admired, I asked her to make an introduction, and invited him to our next gathering. In the past, I’d had prominent authors jump at the chance, excited to spend a night trading ideas with like-minded colleagues. But this potential guest was more skeptical. “I might have a conflict that night,” he wrote. “But can you let me know who’s going to be there and I’ll see if I can get around to it?” In other words: is there anyone important enough to be worth his time? I humored him with the list, and he agreed to attend — until the event was threatened by inclement weather. He wrote back eagerly: Is the event still on? Who’s still coming? Demanding a guest list is the equivalent of craning your neck at a cocktail party to see if someone more worthy of your attention has walked in the door. Of course it’s important to guard your time and be selective about which events you attend, but there has to be a baseline of trust and humility, especially when you’ve been introduced by a mutual contact. Make your best decision about whether to attend, and stick to it.

Make a choice about what to be bad at. Last year, I’d reached a point where I was feeling overwhelmed about my contacts. I knew I should be keeping in touch with people, but the volume had gotten so great, I didn’t know where to start. I signed up for a service called Contactually that helps track your interactions and sends you reminders when you’ve been out of touch with key people too long. A few weeks ago, they offered a free analysis of my email performance over the past year, looking for patterns and weak spots. Desperate for illumination, I had them run one … and got a D+, by far the worst grade I’ve ever received for anything besides handwriting. It was sad, true, and quantified before my eyes: I’m very pokey at responding to most emails. But I do have a policy: unless it’s a spammy message, I will respond eventually. It’s not perfect, but it’s a tradeoff I feel comfortable making thanks to Frances Frei and Anne Morriss’ excellent book Uncommon Service, in which they argue that in order to become truly great at something (such as a bank being open long hours), companies have to make an equally important choice about something to be bad at (such as offering unusually low interest rates on deposits). The same advice works for individuals. I’ve chosen to be bad at email response time because it’s less important to me than serving clients or creating new content like this article. But I’ll never let it get to the point where there’s no response. (My hero in this regard is Wharton professor Adam Grant, who hired an assistant just to help him respond to each and every message he got as the result of a popular New York Times Magazine profile. Though I make some use of virtual assistants, I’m now contemplating hiring someone fulltime.)

Managing your time is a constant balance — too loose, and you spin off in a million unproductive directions; too tight, and you eliminate serendipity and come off like a controlling primadonna. We all have to find the procedures that work for our lives and schedules, but it’s important to do it in a way that doesn’t needlessly alienate others.

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Everything You Need to Know About Becoming a Better Listener

“It can be stated, with practically no qualification,” Ralph G. Nichols and Leonard A. Stevens write in a 1957 HBR article, “That people in general do not know how to listen. They have ears that hear very well, but seldom have they acquired the necessary aural skills which would allow those ears to be used effectively for what is called listening.” In a study of thousands of students and hundreds of businesspeople, they found that most retained only half of what they heard — and this immediately after they’d heard it. Six months later, most people only retained 25%.

In this, I suspect the world has not changed much since 1957. So I dug into HBR’s archives for our best advice on the imperfectable art of listening. Here’s what I found.

It all starts with actually caring what other people have to say, argues Christine Riordan, Provost and professor of management at the University of Kentucky. Listening with empathy consists of three specific sets of behaviors. First, there’s the actual intake of information — recognizing the verbal and nonverbal cues the other person is emitting. Then there’s processing, which is where we make sense of what the other person is saying. Finally, there’s responding. This is where you validate what they’ve said — and note that validating doesn’t mean you have to agree with it — by nodding, playing back what you heard, or otherwise acknowledging that you’re picking up what they’re putting down.

To help you stay focused on the most salient points of what someone else is saying, take notes as you listen. Ram Charan offers a tip he saw work especially well for Larry Bossidy when he was CEO of Honeywell. Bossidy would draw a vertical line down the page of his notebook and write general notes to the left, while keeping track of the most valuable nuggets on the right. This helped train his brain to listen intently and zero in on what’s most important.

Recognize your defaults. Are you gregarious and outgoing — a real extrovert? Then you have many wonderful qualities, but listening well may not be one of them. It’s tough to listen when you’re the one who does most of the talking. Or are you super-conscientious, your smartphone always in hand and your calendar always uber-scheduled? Again … listening is hard when you’re distracted by a screen, or rushing to your next meeting. Knowing yourself is a key part of being a good listener (and one of just many good tips in Sara Stibitz’s piece).

Pay attention when your mind wanders to figure out what’s stopping you from listening. This piece of wisdom comes from Amy Jen Su and Muriel Maignan Wilkins, executive coaches and co-authors of Own the Room. When your attention flags, is it because you’re starting to plan your response to their comments? Or have you started listening to your own inner critic, instead of what they’re saying? But you can’t really listen fully at the same time you’re thinking about something else. When you notice something has blocked you from listening, simply make a note of it — don’t belabor it, or you’re just not-listening for even longer! — and shift your attention back to what the other person is saying.

Nichols and Stevens point out another factor that can stop us from listening: our own emotions. Feelings fog up a conversation. When you notice you’re having an emotional reaction, withhold evaluation and, with your judgment thus suspended, embark on a hunt for evidence that proves your own position wrong.  “If we make up our minds to seek out the ideas that might prove us wrong, as well as those that might prove us right” – which human beings tend to do without making a conscious effort – “we are less in danger of missing what people have to say.”

When someone is upset or venting, a lot of us “listen” by sharing our own experiences (note: that is actually just talking). Or we try to fix the problem. (Note: that is also talking.) Or, perhaps because we’ve been told, “Don’t try to fix it, just listen!” so many times, we clam up and say nothing, which doesn’t result in the speaker really feeling heard. So the best way to listen when someone is venting is to ask questions, writes Mark Goulston, a psychiatrist and author of Just Listen. Help them get all that anger and frustration out into the open, where they can start to make sense of it on their own. Pose questions like, “What are you most angry about?” and “What are you really worried about?” They’ll feel heard, and you’ll get to the root of the problem.

As Nichols and Stevens point out, the basic problem with listening is that we can all think faster than we talk. The human mouth plods along at 125 words per minute, while a neuron can fire about 200 times a second. (This helps to illustrate why it’s crucial to slow down difficult conversations.) So give your brain something else to do while you listen: note the key points that are coming up in the conversation, actively look for nonverbal cues, ask yourself what the speaker might be intentionally not saying, or weigh the evidence being presented.

“The effectiveness of the spoken word hinges not so much on how people talk as on how they listen,” Nichols and Steven write. Many decades later, that’s still true. You can’t necessarily turn the people around you into better speakers. But we can all make ourselves better listeners.

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