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G100 Network Notebook | August 2013

The G100 August Network Notebook is a monthly memo of news and noteworthy reading for G100 Network members from Daniel Casse, G100 President. In this issue we talk about the hype over China’s slowdown, conscious capitalism, the state of work in America, the bureaucracy of terrorism, the purchase of the Washington Post, the sharing economy, and more.

The Hype Over China’s Slowdown

Our G100 Fall Meeting will bring together two of the most thoughtful observers of China’s slowing economy. Both Ian Bremmer of the Eurasia Group and economist Michael Pettis of Peking University are building the case that China’s slower growth isn’t calamitous. In a recent analysis for the Financial Times, Pettis argues that China’s household median income serves as a better measure of growth than GDP.

Growth in household income and household consumption of about 6-7 percent implies that, if China is to rebalance meaningfully, GDP must grow by ‘only’ 3-4 percent. … China’s GDP, in other words, does not need to grow at 7 percent or even 6 percent a year in order to maintain social stability.

Bremmer is even more optimistic:

China’s near-term picture looks surprisingly bright. … The fact that Beijing hasn’t just reflexively pumped capital into the system to keep growth rates up shows that it is willing to begin undertaking modest economic reforms.

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Can Conscious Capitalism Make Money?

Barron’s reviews the recent book by Whole Foods founder John Mackey. In Conscious Capitalism, Mackey argues that companies do better when they focus less on share price and more on stakeholder value. Barron’s is persuaded:

The company also enjoys superior returns. In the grocery business, traditionally known for its low margins, Whole Foods has achieved high margins, and does so with little advertising; customers are the stores’ best advocates. Investors agree. Since the market hit bottom in March 2009, Whole Foods’ shares are up eightfold, compared with a doubling of the Standard & Poor’s 500.

What is the State of Work in America?

Declining and worse than the unemployment rate suggests, say bleak research findings from AEI political economist Nicholas Eberstadt. An unnerving, must-read. He uses the employment-to-population ratio to both dispute a “recovery” in the jobs market and identify an unsettling trend in the labor force:

Over the past 60 years, the employment ratio for adult men has plummeted by about 20 percentage points. Which is to say: if America’s male employment ratios were back at their Eisenhower-era levels, well over 20 million more men would be at work today. … This is a problem – a huge problem, one that has been gathering for decades, and one unlikely to be undone by recourse to standard-issue Keynesian tools.

The Bureaucracy of Terrorism

A disturbing article in Foreign Affairs examines the complex business operations of global terrorist networks:

Many terrorist groups have been meticulous record keepers. Members of the Red Brigades, an Italian terrorist group active in the 1970s and early 1980s, report having spent more time accounting for their activities than actually training or preparing attacks. From 2005 through at least 2010, senior leaders of al Qaeda in Iraq kept spreadsheets detailing salary payments to hundreds of fighters, among many other forms of written records. And when the former military al Qaeda military commander Mohammed Atef had a dispute with Midhat Mursi al-Sayid Umar, an explosives expert for the Egyptian Islamic Jihad, in the 1990s, one of his complaints was that Umar failed to turn in his receipts for a trip he took with his family.

The CEO’s Task: Company Integration

Integration, writes Ram Charan in an HBR blog, is a vital part of talent leadership. He urges companies to develop an integration capability that starts with the CEO. Charan argues that every CEO has to root out and destroy “fiefdoms,” which are often led by the most entrepreneurial individuals:

Understand that 2% of the people in your organization have tremendous impact on the other 98%. … [Make sure the 2% have] the attitude and drive to deliver a winning customer proposition and the ability to synchronize different viewpoints and make the right trade-offs. Pay particular attention to the values of the decision makers. Collaboration must be in their blood. This is a difficult if not impossible shift for those who have been running their own show.

Can Design Thinking Change How Your Business Works?

Tim Brown, CEO of IDEO, and Jim Hackett, CEO of Steelcase, remain on the cutting edge of the “design thinking” movement – an approach to innovation that has developed everything from the original Apple mouse to government forms to encourage charitable giving. “Design” is now a core part of developing an innovative strategy for shaping a customer experience and mapping out a supply chain. This recent article in The Economist, summarizes the trend:

More recently [IDEO] has moved from product design to redesigning services, which now provides a large share of the company’s work. There is much demand for its skills in western Europe, where firms are seeking new processes that will make them both more efficient and more user-friendly. For instance, IDEO is working with Swiss Life to help the staid insurer do better at selling financial services to younger, “generation X” customers.

Best Take on Why Bezos Bought the Washington Post

Astute analysis by Henry Blodget of Business Insider speculates on Jeff Bezos’ reasons for purchasing the iconic-yet-unprofitable Washington Post newspaper. Blodget, who knows what it’s like to work for a Bezos-backed publication, has high hopes for the venture:

Anyone rooting for the Washington Post to transform into a successful digital business should be thrilled that Jeff Bezos is buying it. … Content and commerce companies have long dabbled with combining the two experiences, but no one has really nailed it. Given Amazon’s expertise in affiliate marketing and advertising, it’s not hard to imagine that the Washington Post could quickly become a laboratory for the next generation of integrated content and commerce.

Employee Reviews in China

At our joint session of G100 Talent Consortium and G100, leaders from Intel and Deloitte discussed how China’s cultural nuances make brainstorming sessions difficult and leave people-management skills wanting. In a McKinsey Quarterly interview, Yingyi Qian, the Dean of Tsinghua University’s School of Economics and Management, elaborates on why honest feedback is still a challenge in China.

In a US company, for example, you can do a 360-degree feedback evaluation effectively as part of a performance review. But here in China, that’s very difficult because people just don’t like to give such honest evaluations—they are afraid that others will take things too personally. If I say something strong to an employee in the US, people say, “OK, that’s not personal.” That never works in China.

What Does the “Sharing Economy” Tell Us About the Real Economy?

So much has been written about the “sharing economy” – from Airbnb to ZipCar – that the topic has become tiresome. But there is something fresh about socialist journalist Harold Meyerson’s biting response to Thomas Friedman’s full-throated praise of the phenomenon. Meyerson attacks from the left, arguing that the New York Times columnist doesn’t understand how these tech start-ups serve as insufficient responses to what Meyerson believes are deeper problems with the economy:

Friedman mistakes economic marginality and desperation for innovation and opportunity. … [Airbnb] is what people turn to when their jobs or 401ks don’t pay enough to keep them in their homes. It’s a hard-times innovation, not a portent of a bright future. … All Friedman sees is the techno-whizziness of the client-server matchmaking—not the undercompensation of American workers, young workers in particular, that compels people to become “micro-entrepreneurs.”

Is the US Becoming Less Economically Mobile?

The United States has always prided itself on intergenerational mobility – the ability of one generation to surpass the economic achievements of its predecessors. But Cass Sunstein reviews recent research that suggests the trend is slowing:

If you are born in Pittsburgh, Boston, San Francisco, Minneapolis or New York, you have a fair chance of getting to the top fifth of the income distribution, even if you start out in the bottom fifth. But in other cities – such as Atlanta; Charlotte; Nashville, Tennessee; and Raleigh, North Carolina – children who are born into the bottom fifth are significantly more likely to get stuck.

The study that reached this conclusion controlled for race and regional economic growth rates. The reason for this trend – especially in the South – remains puzzling.

Do CEOs Welcome Coaching?

Overwhelmingly so – 100% are open to making changes based on feedback, says the 2013 Executive Coaching Survey. Although two-thirds of CEOs surveyed do not receive leadership advice from outside consultants, there is a favorable sign among those who do, observes Stephen Miles of The Miles Group, coauthor of the study. He said, “We are moving away from coaching being perceived as ‘remedial’ to where it should be: something that improves performance, similar to how elite athletes use a coach.”

Companies often mistake coaching for mentoring, Harvard’s Robert S. Kaplan said to Talent Consortium and G100 members this spring. A mentor, noted Kaplan, tells a junior person about his or her experience, but a coach offers direct instruction to improve performance.