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G100 Network Notebook | March 2015

The Staggered Board: An Activist Antidote

A Harvard Business Review op-ed outlines the future of corporate governance and how business can make it a reality. Research from Harvard professor and LQK Corporation Director Guhan Subramani recommends that companies consider staggered boards, even though support has dropped dramatically among the Fortune 500.

When a board is staggered, one-third of the directors are elected each year to three-year terms. This structure promotes continuity and stability in the boardroom, but shareholder activists dislike it, because a hostile bidder must win two director elections, which may be as far apart as 14 months, in order to gain the two-thirds board control necessary to facilitate a takeover. In my research…, I find that no hostile bidder has ever accomplished this.

The Secret to Great Investing

Endless curiosity to avoid hubris, says Ray Dalio, the CEO of Bridgewater Associates, the world’s largest hedge fund renowned for its culture of “radical transparency.” His recent op-ed in Institutional Investor frames the thinking behind this novel culture that Dalio will help us explore further at our G100 Spring Meeting.

When most people hear me describe this approach, they typically say, “No problem, I’m open-minded!” But what they really mean is that they’re open to being wrong. True open-mindedness is an entirely different mind-set. It is a process of being intensely worried about being wrong and asking questions instead of defending a position.

Transparency will be a deal breaker for the youngest generation of workers, whose behaviors could spell the end to the “complex” approach to managing generational diversity, authors of a new book predict.

“Software is eating the financial industry”

That riff on Marc Andreessen’s popular idiom comes from new PayPal President Dan Schulman, former head of enterprise growth at American Express who spoke to G100 members last year about the future of mobile. He revisited the topic recently, explaining how PayPal is well positioned in the increasingly competitive area of mobile payments:

With 162 million active customers and 7 million merchants, PayPal did 4 billion transactions last year, 1 billion of which were on mobile devices. Revenue for 2014 came in at $8 billion, up 19% year-over-year, on $235 billion processed in total payment volume. … “One in three adults [in the U.S.] is an active PayPal user,” said Schulman.

Netscape cofounder and Andreessen Horowitz partner Marc Andreessen is arguably Silicon Valley’s biggest software evangelist, a reputation cemented by this widely-read essay from 2011 that offers background for our conversation about the digital revolution with Marc this December in Silicon Valley. He says:

In many industries, new software ideas will result in the rise of new Silicon Valley-style start-ups that invade existing industries with impunity. Over the next 10 years, the battles between incumbents and software-powered insurgents will be epic.

Technology and Regulation

Another member of our all-star, digital panel this December is Sam Altman, president of the tech incubator Y Combinator, and the latest to warn about the dangers of artificial intelligence, “probably the greatest threat to the continued existence of humanity.” In fact, his recent blog postcalls for specific regulations:

Some people worry that regulation will slow down progress in the US and ensure that SMI gets developed somewhere else first. I don’t think a little bit of regulation is likely to overcome the huge head start and density of talent that US companies currently have.

Must CEOs Understand Algorithms?

To succeed amid mounting uncertainty, business leaders of tomorrow must not only anticipate and adapt to change but foster it, Ram Charan advises. This requires having a deep understanding of mathematics and algorithms as well as “perceptual acuity.”

Is this easier said than done? Perhaps, given a recent academic paper that discovered a “costly” human bias, dubbed algorithm aversion:

People are especially averse to algorithmic forecasters after seeing them perform, even when they see them outperform a human forecaster. This is because people more quickly lose confidence in algorithmic than human forecasters after seeing them make the same mistake.

How to Narrow the Skills Gap

Free community college, via President Obama’s executive action, won’t cut it, says Joseph Fuller of the U.S. Competitiveness Project. His prescription puts the onus on business to lead this issue:

When community college programs disappear after a local employer hires all the students and the instructors en masse (as happened with a welding program in Louisiana recently), the implication is clear: businesses are thinking in the short term, relying on the spot market for talent, rather than cultivating talent pipelines to ensure their long-term competitiveness.

Facing Reality About Coal

front-page New York Times article focused on Senate Majority Leader Mitch McConnell’s effort to block federal coal regulations. But, as Ken Silverman of Forbes explains, this might just be theater – the power industry is already moving away from coal:

[Coal] has taken a beating at just about every level, with the exception of two states that are heavily coal dependent: Kentucky and West Virginia. The rest of the country, meanwhile, is getting on with the business of being green, changing out their old coal-fired units for those that run on natural gas or renewables. To be sure, coal provides nearly 40 percent of the fuel used in electric power generation in this country. But utilities are moving away from coal: American Electric Power said that it is retiring 6,500 megawatts of coal by mid-year, 90 percent of which was used to meet demand in 2014.

Building Better Executive Teams

A 2015 white paper from Spencer Stuart discusses how companies can drive high performance through teams, identifying the characteristics of top executive teams and common pitfalls. An excerpt:

CEOs frequently over-estimate how clear the team’s mandate is or allow membership on the team to be defined less by the strategic purpose than by who shows up to meetings. And sometimes a task is better and more efficiently accomplished by an individual or a separate group than the whole senior team.