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G100 Network Notebook | October 2017

Politics Is Failing America – and Business

The US political-industrial complex – supported by a network of lobbyists, super PACs, and the media, among others – has built up a duopoly that hurts citizens and businesses, argue Harvard Business School’s Michael E. Porter and former CEO Katherine M. Gehl. Their new report looks at strategies to address political dysfunction, including increased political philanthropy and removing barriers to third-party candidacies. The authors also outline the responsibilities – and opportunities – of business leaders in fixing the system:

The next generation of business leaders—the Millennials—are disgusted with today’s political system. It is time for today’s leaders to recognize the failure of today’s business-government relationship and change it. Today’s CEOs also need to redefine corporate purpose in ways that align strategy and business competition with the needs of society, which will mean a different relationship with government. Business leaders must create a very different set of government priorities for advancing the economy, establishing a whole new relationship between business and political leaders, and generating pressure for action.

Cyber Escalation: New Powers, Advanced Threats

An army of over 6,000 hackers have helped North Korea become a cyber powerhouse, capable of crippling the UK’s National Health Service with ransomware, stealing $81 million from the New York Federal Reserve, and hacking bitcoin exchanges. The New York Times reports on its updated methods and targets:

“Cyber is a tailor-made instrument of power for [North Korea],” said Chris Inglis, a former deputy director of the National Security Agency, who now teaches about security at the United States Naval Academy. “There’s a low cost of entry, it’s largely asymmetrical, there’s some degree of anonymity and stealth in its use. It can hold large swaths of nation state infrastructure and private-sector infrastructure at risk. It’s a source of income.”

Closer to home – and in some cases, in them – the next big cyberstorm may be brewing. The IoT Troop botnet (also known as the Reaper botnet) has already infected one million Internet-connected devices, including routers and cameras. Cybersecurity experts explain the threat to Wired:

Instead of merely guessing the passwords of the devices it infects, it uses known security flaws in the code of those insecure machines, hacking in with an array of compromise tools and then spreading itself further. … “The main differentiator here is that while Mirai [last year’s large-scale malware] was only exploiting devices with default credentials, this new botnet is exploiting numerous vulnerabilities in different IoT devices. The potential here is even bigger than what Mirai had,” says Maya Horowitz, the manager of Check Point’s research team.

Fixing Culture in a Turnaround

Strong leadership and a compelling strategy are key components to successful business turnarounds, says Mary Berner, CEO of Cumulus Media. Two years into her rebuild, Cumulus has grown revenue and EBITDA again, while decreasing turnover from 50% to 24%. Berner shares her culture playbook:

Every employee needs to know five things: where we are, where we are going, why it matters, what’s my role, and what’s in it for me. Every leader needs a direct pipeline to employees. Nothing beats showing up. I have visited almost all of our 90 markets, meeting every employee in small group meetings during which I asked for feedback about our company, the local market and our culture agenda.

China’s Growth Prospects

By including his name and ideology in its constitution, China’s Communist Party has formally anointed President Xi Jinping as the “most dominant leader since Mao.” The Atlantic examines the political and economic announcements from the recent party congress, which notably did not include a plan for continued double-digit economic growth:

Christopher K. Johnson, a senior adviser at the Center for Strategic and International Studies said he was struck by no mention at the congress of aggressive Chinese growth. This, Johnson said, “suggests a willingness to tolerate slower growth in the coming years, which is unexpected, I think, internationally. So, if they switch to a more aggressive policy on trying to tighten up on debt, which I think they will in the new year, that’s going to take a lot of people by surprise.”

How will China’s rebalanced growth trajectory impact the rise of domestic entrepreneurship? VC investment in China has ballooned and over 89 Chinese startups are considered unicorns, with a collected valuation of more than $350 billion. The Economist explores factors that drive this new entrepreneurship, including better infrastructure and inefficient state incumbents, looking closely at autonomous vehicles:

The Chinese are keen to try new products and are more forgiving than Westerners if they are not perfect. Deprived of consumer goods and luxuries for many years, they are eager to experiment. Wealthy Chinese are younger (typical Audi buyers in Germany are in their 50s; in China they are in their 30s), and hence more familiar with technology. Because the car is not a cherished cultural icon as it is in America, locals are not addicted to driving and are open to alternative forms of mobility such as ride-sharing.

The Activist-Index Fund Alliance?

Discussions of activist investors suffer from a framing bias that harms shareholders, says Elliott Management’s Paul Singer in a Wall Street Journal op-ed. On the heels of Procter & Gamble’s historic proxy battle, Singer argues that positioning short-term and long-term investors as rivals helps companies justify underperformance and scrutinize activist proposals to generate more value. Rather than evaluating proposals based on time horizons, Singer proposes a framework of “good ideas vs. bad ideas”:

There are good ideas that create sustained improvements and can be implemented quickly. Likewise, there are bad ideas that can take a long time to destroy value. The benefits of fixing a broken strategy, getting rid of a bad acquisition, redeploying an underperforming asset, or replacing an ineffective management team or board may show up right away in a company’s stock price, but that immediate result doesn’t diminish the long-term benefits.

Connected Consumers Reshape the CPG Landscape

Responding to them starts with an engaged, educated, and agile workforce, say G100 Companies Senior Advisor Deb Henretta, former Group President at Procter & Gamble, and General Assembly’s Anand Chopra-McGowan. In Harvard Business Review, they profile major CPGs, including P&G and LMVH, focused on digital transformation:

“Borrowing from fields like user experience design, we’ve been able to reconsider crucial aspects of recruiting, onboarding, development, and retention to create journey maps to enhance the employee experience,” says Nathalie Cheveau, global talent development manager at LVMH Fashion Group. At Céline, one of their French luxury brands, an employee journey map resulted in four new initiatives to mitigate high and low points for key commercial staff in Paris.

Fast-Tracking Women Into Roles that Matter

Midlevel managers play a key role in supporting the advancement of women, both in expanding their scope of ambition and accelerating promotion, per LeanIn.Org and McKinsey’s Women in the Workplace report. Getting to the C-suite, however, often requires time in roles with P&L responsibility and closer ties with senior executives. The Wall Street Journal highlights an Accenture program that fosters executive sponsorship:

In any given year, some 30 women are taking part in the program. Each of the protégés gets two sponsors on Accenture’s global leadership team who mentor them and help launch them on a path to promotions. The role of the sponsors, Ms. Shook [Ellyn Shook, chief leadership and human-resources officer] says, is critical: “When the leadership appointments are being made, the sponsors are at the table saying what their sponsees have done.” About 80% of the sponsored women have since expanded core business, or line, responsibilities or gone on to senior roles that have an impact on the bottom line.

A Contrarian View of the Future Economy

Earlier this month, G100 Companies hosted a regional dinner for CEOs, board directors, and executives with Minneapolis Federal Reserve Bank CEO Neel Kashkari, who oversaw TARP and has emerged as the lone dissenter to raising interest rates. Our conversation with this maverick of the Fed revealed a few thought provoking points, captured in our summary here. An excerpt:

The skills gap is over hyped, and employers must raise wages to fill job vacancies. When employers complain about skill gaps but simultaneously refuse to raise wages, it sounds like whining to some economists. The job market grew stronger since 2010, with unemployment dropping to 4.2%, yet wage growth remains surprisingly slow with low inflation.