HBR Dec 2016: Setting CEOs up to win

Harvard Business Review

December 2016

Annotated table of contents

1. Adi Ignatius, Dealing with unexpected bias

Adi Ignatius, the editor-in-chief of HBR, draws attention to research reported in the article by Ray Fisman and Michael Luca, on discrimination in online marketplaces. Ignatius says: As with all issues of self-awareness, the way forward involves first acknowledging the problem.

Idea watch

2. HBR Team, The scary truth about corporate survival

This article draws on a working paper by Vijay Govindarajan and Anup Srivastava exploring trends in corporate mortality and survival. They find that while companies listed in the USA before 1970 had a 92% chance of surviving after 5 years, companies listed in the first decade of this century had only a 63% chance. The higher mortality rate is due to the fact that new, digital companies are more vulnerable to imitation. However, digital companies have at least three strategies at their disposal if they want to stay ahead of competition. One is to combine digital and physical products in their business model, since the latter are more difficult to replicate and have more staying power. Further, they can take action to grow their networks and can focus on continual innovation.

3. Nicole Torres, MBAs are more self-serving than other CEOs

Danny Miller, a professor at HEC Montreal and Xiaowei Xu, an assistant professor at the University of Rhode Island analysed the performance of 444 high-profile CEOs, featured on Fortune, Forbes and BusinessWeek covers between 1970 and 2008. Comparing the firms’ growth strategies and performance on the one hand, and the CEOs compensation on the other, they found that CEOs who had an MBA tended to extract higher compensation despite the declining market value of their companies. These CEOs are thus ‘self-serving’: they tend to engage in hazardous experiments; their success is short-lived; and they benefit from unusually generous compensation hikes. It remains an open, but intriguing question, whether business schools and MBA programs contribute directly to this finding and this interview explores a number of possible explanations and avenues for further research.

How I did it

4. Dan Schulman, Paypal’s CEO, on creating products for underserved markets

Schulman became the CEO of Paypal in September 2014, a few months before the company was due to launch its IPO, as a separate company from eBay, its owner, in July 2015. Schulman brought to the task his experience of serving less-affluent people by providing them with affordable access to essential services, in his former roles as the CEO of Virgin Mobile and division leader at American Express. To prepare for the IPO, Schulman helped redefine the purpose and strategy of PayPal. While both a tech company and a financial services company, PayPal chose to define its role as essentially a champion for customers, reorganizing its operations in only two main functions, for consumers and for merchants. Thus, Paypal hopes to help its clients save at least half of the annual $130 billion in financial transaction fees currently paid in the US, driving up shareholder value in the process.

Big idea

5. Aldo Musacchio and Eric Werker, Mapping frontier economies

Poor, vulnerable, unstable economies may be difficult to operate in, but they can also offer high rates of growth and long-term prospects. In this article, Musacchio and Werker offer a framework for assessing opportunities and choosing strategies for entering this kind of markets. They define frontier economies according to three criteria: faltering prosperity, corruption, and arbitrary enforcement of rules and regulations. At least 19 high-growth economies meet these criteria and they have a specific matrix of opportunities, depending on customer orientation (domestic or foreign) and the level of government control (high or low). Thus, the matrix includes four types: workhouse companies, cluster builders, power brokers and rentiers. Further, Musacchio and Werker discuss the strategies appropriate for each type and offer examples of successful and failed efforts, including BHP Billiton in Mozambique, Sheritt in Madagascar and Cuba, Integrated Tamale Fruit Company in Ghana, Unilever in India and Africa.

Spotlight: Setting CEOs up to win

6. Ram Charan, The secrets of great CEO selection

Charan distils here his more than three decades of experience with CEO selection in top companies in developed and developing economies. There are many analytical and practical steps involved, some of which may go against the preferences and expectations of both candidates and board. First, Charan suggests that directors involved in recruiting a new CEO work hard to determine exactly what the company needs from the new leadership, what is the ‘pivot’ that will determine its success in current and future market conditions. This will be the main criterion for the CEO search, even if it means that a whole list of hopefuls, internal or external, might have to be put aside. Finding the right fit will likely entail in-depth interviews and reference checking, but scrupulously evaluating each candidate against the pivot is necessarily detailed and arduous work. Even so, a certain amount of tolerance for imperfections in the new CEO may be necessary, provided that the board can live with them. The search leaders who have the respect and trust of their colleagues are more likely to be able to keep this rigorous process on track.

7. Dan Ciampa, After the handshake

Nearly half of all new chief executives fail in their first 18 months on the job. To a large extent, the blame is to be shared between all concerned. In many cases, new CEOs are left to learn about their new role (and sometimes their new organization) on their own. Even though an initial round of meetings with relevant executives may be set up for them, new external CEOs rarely have a trusted guide to the history, culture and undercurrents of opinion and feeling, alliances and antagonisms that shape their company. In this article, Ciampa spells out the criteria for success and discusses the roles of the CEO, CHRO and the board according to types of scenarios: internal versus external CEO; immediate transition versus working alongside the current CEO as ‘designated successor’; and the departure of the old CEO versus her continued involvement in the company. Examples of both success and failure illuminate the salient points and there is an additional, in-depth interview with Mark Thompson about the start of his tenure as CEO of The New York Times Company in 2012, prepared by Daniel McGinn.

8. Eben Harrell, Succession planning: What the research says

Harrell, a senior editor at the HBR, takes stock here of the main trends in CEO tenure and the analysis and advice offered by recent studies and books. Research findings and opinions may remain divided, but these are urgent and important questions: how long should the planning for transition take, months or years? Are insiders more successful than outsiders? How to understand the fact that outside CEOs represent now 20-30%, two or three times more than in the 1970s and 1980s? What are the traits of a great CEO in our times?


9. Leemore S. Dafny and Thomas H. Lee, MD, Health care needs real competition

The US healthcare system has been the topic of intense debates due to continued high costs, variable quality of service and uneven coverage, with millions of people still uninsured. Here Dafny and Lee suggest that the root cause of these dysfunctions is the lack of genuine competition in the provision of health care. They identify the barriers to competition – limitations of the reimbursement-based and market incentives, inadequate data on value and inadequate know-how – and note the positive pressures on these barriers to lower in the last decade. However, the process of change remains slows and they point out five catalysts for competition and the strategies that stakeholders could use to leverage them. In brief, the catalysts are: put patients first; create choice for patients and providers; stop rewarding volume; standardize methods to pay for value; and make data on outcomes transparent.

10. Ray Fisman and Michael Luca, Fixing discrimination in online marketplaces

Racial and gender discrimination in the marketplace have long been documented. More surprisingly, perhaps, discrimination has also emerged in online marketplaces, after an initial period of openness. As soon as identifying features, such as names and photographs, were introduced, it became apparent that some minority groups were less likely to receive favourable offers when buying or selling goods and services. To address this issue, Fisman and Luca propose that two design principles and four design decisions affect the probability that discrimination will occur. By way of principle, they suggest that we should keep at the front of our minds that there is a potential for discrimination and this should to be continually tested through experiments. Design decisions are around the amount of identification information required, the degree of automation of the transaction process, the inclusion of features that may sensitize participants to the potential discriminatory impact of their decisions and the construction of algorithms. Thus, to achieve equality, the effects of algorithms need to be constantly monitored and their features updated accordingly.


11. Manfred F. R. Kets de Vries, Do you hate your boss?

Kets de Vries tackles here an issue that has likely affected every employee at one time or another: misunderstandings, tension, or a mismatch of styles between them and their manager. However, the intensity of the issue can vary and the range of advice offered here starts at the shallower end, where practicing empathy might be sufficient for a change of perspective and the opening up of more positive options. De Vries then goes on to discuss the importance of self-reflection and the willingness to consider one’s own role, the ability to devise and propose ideas to change the dynamic in the relationship, or to create alliances with others to bring about a mutiny if necessary. Finally, it may be necessary to play for time and move on.

12. Jyotsna Bhatnagar and Nakul Gupta, Case study: Should you rehire someone who left for a competitor?

This case study draws from the experience of a sustainable building company in India in the cusp of expanding to new markets abroad after surviving local scaling up challenges. It explores the tension between personal and business considerations, loyalty and competence.

13. Tim Sullivan, The philanthropist’s burden

Giving money away might sound easier than making it, but giving responsibly is actually very hard. Sullivan reviews a documentary on the perils of aid-giving in the developing world, a book on the travails of one wealthy benefactor, and a second book presenting the ‘Robin Hood’ methodology of smart giving.

14. Alison Beard, Life’s work interview with Brian Wilson

Brian Wilson is living proof, if proof were needed, that mental illness need not hamper creativity or indeed reaching the heights of popular and critical success, at least in music. Here he talks openly about his ways of coping at different stages of his career, his relationships with collaborators and the members of Beach Boys, his creative process and his joy as his music continues to bring love to the world.