You are here

Harvard business

Subscribe to Harvard business feed Harvard business
Practical insights, tools and resources from leading business thought leaders.
Updated: 1 hour 3 min ago

Why CEOs Should Share Their Long-Term Plans with Investors

11 hours 10 min ago
Fanatic Studio/Getty Images

Many people have suggested moving away from quarterly earnings reporting as a way to reduce short-termism. But such a change would probably not change how resources are allocated or businesses operate. Rather than requiring less short-term information, we believe the key to combating short-termism is to encourage companies to share more information about their long-term plans.

When asked why companies don’t talk more about the long term, CEOs often complain about the short-term orientation of investors. Similarly, investors complain that companies don’t disclose enough long-term information for them to work with. This conundrum is finally being tackled by the Strategic Investor Initiative of CECP, a CEO-level organization where one of us works. CECP has created a framework for CEOs to present the long-term strategic plans for their companies and hosts CEO Investor Forums in which to do so. To date, 19 CEOs of S&P 500 companies — such as Becton Dickinson, AETNA, 3M, PG&E, and Unilever — have presented their plans to institutional investors representing in excess of $25 trillion in assets under management. Tomorrow, another three companies — IBM, NRG Energy, and GSK — are presenting their long-term plans. The expectations for an effective long-term plan are described in SII’s Investor Letter to CEOs. Signed by leading institutional investors, the letter describes the components of a long-term plan that enables a CEO to address enduring issues of investor interest and help plug an unmet market need for information with a long-term time horizon.

CEOs have shown leadership in presenting these long-term plans; however, to date, we have not had evidence on the capital market consequences that the presentation of a long-term plan may have. We have been asked by presenting companies, those considering presenting, and other stakeholders to demonstrate real-world impacts from delivering these plans — the “what’s in it for me?” argument for why a company should deliver a long-term plan.

Given this, CECP partnered with KKS Advisors, an advisory and research firm where one of us works and the other is cofounder, to explore the information content of these plans, create a framework analyzing the content of the reports, and examine how capital market participants respond to them. Given the limited sample we have to analyze, we consider our results preliminary. However, they provide important early evidence and can be used in the future as an anchor in analyzing even more companies, as well as the long-term effects from the presentations of these plans. We collected all company strategic plans that have been presented at the CEO Investor Forum over the past four events and analyzed the subsequent returns and trading volume to understand whether there are abnormal movements in the market on the day of the event and the three-to-five-day window following the event.

We find larger capital market reactions both for stock prices and trading volume for the three and five days after the presentation of the long-term plan, compared to the typical reactions on other days, suggesting that the long-term plans communicate new information that market participants did not have before. These data also suggest that long-term plans are not mere marketing presentations or “cheap talk.” However, we find no increased propensity for Wall Street analysts to revise their forecasts in response to a long-term plan, consistent with such analysts being primarily focused on the type of short-term financial results typically delivered through the earnings call. Despite the latter finding, larger capital market reactions for both stock prices and trading volumes during the course of the event suggests that the information presented during the event is new and value-relevant for investors — that is, they are acting on it. As such, the long-term plan can be a valuable addition to the investor relations’ tool kit to enable CEOs to effectively communicate with structurally long-term investors.

We have also analyzed the content of each of the long-term strategic plans delivered at the CEO Investor Forum according to an analytical framework based on SII’s Investor Letter to CEOs, hundreds of pieces of investor feedback, and the work of collaborative initiatives, such as FCLT’s 10 elements of a long-term strategy. We then scored the quality of disclosure based on whether there is no disclosure, generic disclosure, backward-looking metrics, or forward-looking metrics for a category. A good long-term plan provides the investor with forward-looking metrics on several issues — not a generic narrative based on backward-looking information. The categories include 22 specific issues grouped into nine distinct themes: financial performance, capital allocation, industry and mega-trends, competitive positioning, risks and opportunities, corporate governance, corporate purpose, human capital, and strategic partnerships for long-term value creation.

This framework helps us analyze the content of each long-term plan presented to date — and gives us the basis for analysis of future plans. For example, plans for Becton Dickinson and Medtronic score at the top of the distribution. They are rich, specific, and actionable. Companies seem to find it easier to disclose more forward-looking metrics on themes such as competitive positioning (long-, medium-, and short-term value drivers), trends (sources of competitive advantage), and financial performance (capital efficiency and profitability). By contrast, forward-looking metrics were rarely provided for issues underlying the corporate governance theme. In fact, 58% of companies provided no information on executive compensation and how it is linked to the long-term, and 53% of companies did not disclose anything on their board composition.

Our analysis suggests that companies disclosing more actionable information around competitive positioning, corporate purpose, and the strategic partnerships in their corporate ecosystem had significantly larger market reactions than other companies when they shared their long-term plans. This suggests that, to an extent, plan content (as captured in our framework) does correlate with the capital market reactions to these plans.

We hope that this evidence will start a much-needed discussion among more CEOs to present their own long-term strategic plans, and kick-start a significant reframing of the way companies report and investors consume and act on information. We will continue analyzing the content of these plans; build a database of long-term plan content as a resource for companies, investors, and researchers; and continue to enable leading CEOs to develop best practices in delivering long-term plans. Every publicly listed company should deliver a long-term plan as part of reorienting our capital markets toward the long term.

Categories: Blogs

How to Retain and Engage Your B Players

12 hours 10 min ago
Peter Dazeley/Getty Images

We’ve heard for decades that we should only hire A players, and should even try to cut non-A players from our teams. But not only do the criteria for being an A player vary significantly by company, it’s unrealistic to think you can work only with A players. Further, as demonstrated by Google’s Aristotle project, a study of what makes teams effective, this preference for A players ignores the deep value that the people you may think of as B players actually provide.

As I’ve seen in companies of all sizes and industries, stars often struggle to adapt to the culture, and may not collaborate well with colleagues. B players, on the other hand, are often less concerned about their personal trajectories, and are more likely to go above and beyond in order to support customers, colleagues, and the reputation of the business. For example, when one of my clients went through a disastrous changeover from one enterprise resource planning system to another, it was someone perceived as a B player who kept all areas of the business informed as she took personal responsibility for ensuring that every transaction and customer communication was corrected.

How can you support your B players to be their best and contribute the most possible, rather than wishing they were A players? Consider these five approaches to stop underestimating your B players and help them to reach their potential.

Get to know and appreciate them as the unique individuals they are. This is the first step to drawing out their hidden strengths and skills. Learn about their personal concerns, preferences, and the way they see and go about their work. Be sure you’re not ignoring them because they’re introverts, remote workers, or don’t know how to be squeaky wheels. A senior leader I worked with had such a strong preference for extroverts that she ignored or downgraded team members who were just going about their business.

You and Your Team Series Retention

Meanwhile, the stars on her team got plenty of attention and resources, even though they often created drama and turmoil, rather than carrying their full share of responsibility for outcomes. Some of the team members she thought of as B players started turning over after long-term frustration. When the leader and some of her stars eventually left the company, some of the B’s came back and were able to make significant contributions because they supported the mission and understood the work processes.

Reassess job fit. Employees rarely do their best if they’re in jobs that highlight their weaknesses rather than their strengths. They may have technical experience but no interest, or they could be weak managers but strong individual contributors. One leader I know had been growing increasingly more frustrated and less effective; the pressures of satisfying the conflicting demands of different departments were too much for her. Then she took a lateral move to manage a smaller, more cohesive team focused on developing new products, and was able to focus and be inspirational again once she was freed from the pressures of managing projects in such a political environment.

Consider the possibility of bias in your assignments. Women and people of color are often overlooked for challenging or high-status assignments. They’re assumed “not to be ready,” or they’re not considered because they don’t act like commonly held but stereotyped views of “leaders.” When a midlevel leader who was trying to get more exposure and advancement for one of his team members couldn’t figure out what was holding her back in the eyes of the senior leader, I raised this possibility, and we strategized multiple ways that her boss could showcase the quality and impact of her work in upcoming meetings.

Intentionally support them to be their best. Some people are their own worst critics, or have deep-seated limiting beliefs that hold them back. When one of my clients lost a senior leader and couldn’t afford to replace her at market rates, a longtime B player near the end of his career nervously filled the gap. Although he expanded his duties and kept the team going, he emphasized to both his management and himself that he wasn’t really up to the job, and most of the executive team continued to treat him that way. It was not till after he had retired, and a new senior leader had to fill his shoes, that it became clear how much he had done on the organization’s behalf. The executive team never came to grips with how much more he could have accomplished had they provided the relevant development, support, and appreciation all along.

Give permission to take the lead. In 30 years of practice, one of the most common reasons I’ve seen people hold back is if they don’t believe they’ve been given permission to step up. (The people we think of as A’s tend not to ask for or wait for permission.) Some B players aren’t comfortable in the spotlight, but they thrive when they’re encouraged to complete a mission or to contribute for the good of the company. A midlevel leader I coach is quiet, modest, and doesn’t like to make waves. She kept waiting for her new leader to lay out a vision for the future and to provide direction about how the work should be done. I asked what she would do if she was suddenly in charge. She laid out a cogent plan, and I encouraged her to present it to the new leader and ask for permission to proceed. Now she and the senior leader are moving forward in partnership.

We can’t all be A players, and it’s unrealistic to think we’ll only ever work with A players. But that may not be the appropriate goal. Instead, try using these strategies to help employees give their best, and you’ll be ensuring that your whole team can turn in an A+ performance.

Categories: Blogs

Research: The Digitization of Banks Disproportionately Hurts Women Entrepreneurs

12 hours 48 min ago
Veronica Grech/Getty Images

As banks rush to digitize their operations, many have found that closing their local branches can help maintain a high return on an otherwise pricy transformation. European banks, for example, closed over 9,000 branches in 2016, which represents a 4.6% reduction in a single year. According to our calculations, using data from the Swedish Bankers’ Association, a full one-quarter of bank branches in Sweden have shuttered over the past four years. In the United States, the total number of bank branches has dropped by 8.2% since 2013, and shrank by more than 1,700 in 2017 alone. This rapid transformation is also occurring in Asian banks, where services are being digitalized, bank functions are being centralized, and local bank branches are closing down.

Although banks consider this digitalization to be one of the main methods to increase their competitiveness, it may disrupt the relationship between banks and their venture clients. In Sweden, for example, the portion of approved bank loans to small and medium-size enterprises has decreased by 15% over the last 10 years, and roughly 60% of all ventures in need of external financing have reported difficulties in accessing financing for their investments

Many of the effects of this rapid digital change on entrepreneurship still remain unclear. But our research finds that this ongoing transformation has clear downsides for entrepreneurs in general and women in particular. It turns out that women entrepreneurs who seek to finance their ventures using bank financing are increasingly forced to find solutions elsewhere. And compared to men, women entrepreneurs are pushed into desperate and extreme types of financing.

In the past, banks’ financing of entrepreneurs has typically been dominated by relationship-based lending, in which personal meetings between an entrepreneur and a lender were at the heart of the assessment. These meetings allowed for the exchange of important information about the business model, intangible assets, future prospects, and more. This information was seldom documented formally or expressed in writing, but it allowed for an assessment of the entrepreneur’s willingness to repay the loan; their current and previous behaviors (for example, how they’ve run past businesses or how they’ve set and achieved goals); and their experience, merits, and ambitions — pieces of information that are generally considered to be strong indicators of a venture’s future performance. Having access to this kind of information enables lending to young and small ventures, which generally lack historical financial records. The practice of relationship-based lending generally requires banks and ventures to be in close proximity to one another.

In recent years, however, digitization has led a majority of banks to turn to another model to make funding decisions: a transaction-based model. As opposed to meeting with entrepreneurs, this model is largely based on financial reporting information, credit scoring, and the quality of accessible assets as collateral. Early in our research process, we suspected that gender might matter when it comes to who is approved and who is denied based on this type of reporting. Studies show that women have lower access to capital, for example. And that even when they are approved for financing, they face more demanding credit terms compared to men. The origin of these biases has been linked to gender stereotyping, where men entrepreneurs are perceived as being more ambitious and having more entrepreneurial potential than women. Such stereotypes are automatically activated when a person’s gender is identified — even on paper — and can significantly influence perceptions about whether an entrepreneur is financeable. This can also sway decisions to approve or reject loans to women and men entrepreneurs.

In 2017, we launched a research project in order to learn more about the effects of banks’ lending model transformations. We targeted a random sample of Swedish entrepreneurs (both men and women) who were applying for bank financing. We approached a total of 605 people and had a response rate of 24%. At the core of the study, we analyzed the extent to which the entrepreneurs were forced to engage in a total of 20 different informal economic activities to handle their need for financing. They include not paying taxes or invoices on time, breaking credit agreements, the use of undocumented workers and trades in services. We combined this data with alternative and complementary secondary bank data in order to control and mitigate confounding effects of the size, type, and age of the ventures; their capital need; and the educational level of the entrepreneur and employees.

Our results show that women face increased difficulty in accessing bank financing, and specifically that women’s entrepreneurship suffers heavily from the recent transformation among banks. In short, women entrepreneurs showed more of a need to engage in informal economic activities than men.

Why? Gender provides an “implicit background identity” for a banker when assessing an entrepreneur. This identity can bias financing decisions. But if the banker meets with the entrepreneur, that identity may change. Thus, a lack of interactions between banks and entrepreneurs allows for initial stereotypes to frame bankers’ perceptions of entrepreneurs, which may be amplified when no actual social interactions occur that could change these stereotypes.

There’s an argument that the centralization of financing decisions could improve conditions for women entrepreneurs; human distance and computer algorithms may solve the problems with human interference. Our findings call this into question, however, as the women entrepreneurs in our study were often placed outside the formal economy for financing their ventures.

To begin to address this issue, banks may need to revisit their recent rapid change in decision models to strive for equal opportunities when financing entrepreneurship. Women entrepreneurs, for their part, also must be selective when choosing a bank, carefully considering the bank’s decision model and building relationships with bankers in an attempt to overcome stereotyping and gender-biased access to financing. What is clear is that we need to know more about what business opportunities are lost — as well as how and why this loss occurs — when banks adopt transaction-based lending models.

Categories: Blogs

You Have to Stop Canceling and Rescheduling Things. Really.

14 hours 5 min ago

A friend recently returned to his parked car to find it had been sideswiped. Now, every time he calls the insurance company, he hears a message saying: “Can’t take your call right now. Leave a message. All calls will be returned by the end of the day.”

So far, he’s called over a dozen times; his calls have been returned only twice.

Why would an insurance adjuster have a voicemail message assuring callers that “all calls will be returned by the end of the day” and then return only 20% of the calls it committed to returning? Probably for the same reasons most of us promise “to write back to your email on Monday” but don’t, or promise “to send out that memo by Friday” but don’t.

Why do any of us say we will do things and then fail to do them?

We overcommit ourselves. We don’t like to disappoint people, so we tell them what we think they want to hear. We feel pressure in the moment and don’t stop to consider how much pressure we’ll feel later. We don’t think through how much time things will actually take — and we don’t leave enough slack time in our days to handle the (inevitable) emergencies and delays.

Up until a few years ago, I canceled or postponed meetings a lot. I would say yes to something (so much easier than saying no). As the commitment approached, I would feel overwhelmed and want to cancel. And often, I would cancel.

Then I read Stephen M.R. Covey’s book The Speed of Trust. It’s about being trustworthy. I had always thought that I was, but the author explains that when you make appointments and you cancel them, then trustworthy you aren’t. When you fail to fulfill commitments that you freely make, trust is not the result.

Since then I have realized that the temptation not to follow through is compounded by ease. Never has canceling, for example, been easier and less painful for us than it is in the age of the text message. We can cancel without ever having to speak with, much less meet, someone. We can cancel five minutes ahead and without explanation. Just tack on an emoticon to our message, and we can convince ourselves that it’s almost the same as if we’d met our obligation.

But the thought process still isn’t pain-free. We feel guilty about it. We waffle over what to do — and the indecision is draining. Finally, we cancel, and we undermine our confidence in ourselves. It reinforces our conviction that we can’t do it all — that we can’t control our schedule, or even our effort.

There are consequences for our personal lives, and there are certainly consequences in the workplace. Keeping commitments is a sign of maturity. Employees who don’t finish assignments, for instance, or finish them late or poorly, or are themselves routinely late, miss meetings, and cancel appointments, are an imposition on other team members and a liability to their employers.

Because these bad habits are nearly ubiquitous, they inevitably hitch a ride with some of us as we climb the ladder into leadership roles, where the workplace dysfunction they generate is magnified. It’s difficult to hold your subordinates accountable when you don’t hold yourself accountable. It’s hard to trust others when we know we can’t be counted on. How do we inspire commitment in those we lead when it’s obvious to them that commitment is a negotiable principle for us? It’s impossible to be a good leader if we don’t govern ourselves.

Last year I decided I would stop rescheduling my commitments and treat them as just that: commitments. And what I found is that when I committed to do the things I said I’d do, I actually felt much less stressed by them. As I kept more and more commitments, I got more and more confident. And I learned how long things really take, so I got better and better at giving estimates on when I could deliver.

If you really mean no when you say yes, then say no in the first place. We are all in the same boat — we have finite time and a seemingly infinite number of worthwhile things to do with it. Don’t know how to say no? Google “how to say no to a request” and then study up. Commit yourself to not agreeing to do things unless you’re going to follow through. Ask for time to think things over if you’re unsure. Don’t overschedule yourself. If you’re truly overextended, you may require a transition period to weed some things out; after that, once you say yes to something, stick to the yes. If the commitment seemed like a good idea at the time, it still is — even if the value is found not in the activity itself but in being trustworthy and following through.

Categories: Blogs

How Companies Get Creativity Right (and Wrong)

Tue, 09/18/2018 - 13:00

Beth Comstock, the first female vice chair at General Electric, thinks companies large and small often approach innovation the wrong way. They either try to throw money at the problem before it has a clear market, misallocate resources, or don’t get buy in from senior leaders to enact real change. Comstock spent many years at GE – under both Jack Welsh’s and Jeffrey Immelt’s leadership – before leaving the company late last year. She’s the author of the book Imagine It Forward: Courage, Creativity, and the Power of Change.

Download this podcast

Categories: Blogs

Use Your Everyday Privilege to Help Others

Tue, 09/18/2018 - 10:00
Jeff Schear/Getty Images

I often forget I am straight.  I just don’t think about it much.  When asked what I did this weekend, or when setting family photos on my desk at work, I have no reason to wonder if what I say will make someone uncomfortable, or lead to a “joke” at my expense, or cause a co-worker to suddenly think I am attracted to them.  Our culture is set up for straight people like me to be ourselves with very little thought. But for some gay colleagues, a simple question about the weekend or a decision of how to decorate the workspace carries significant stress—how to act, who to trust, what to share.  A recent study found that 46% of LGBTQ employees are closeted in the workplace, for reasons ranging from fear of losing their job to being stereotyped.  Unlike me, a non-straight person is unlikely to have the privilege of going an entire day without remembering their sexual orientation.

This privilege of being able to forget part of who you are is not unique to straight people.  Each of us have some part of our identity which requires little attention to protecting oneself from danger, discrimination, or doltish humor. For example, in America, if you are white or Christian or able-bodied or straight or English-speaking, these particular identities are easy to forget.  It is just an ordinary way of being.  Ordinary privilege is ordinary because it blends in with the norms and people around us, and thus, is easily forgotten.

Just about every person in America has one form of this ordinary privilege or another. This is nothing to be ashamed of, or deny, even though it can often feel like an accusation. Ordinary privilege is actually an opportunity. Research repeatedly confirms that those with ordinary privilege have the power to speak up on behalf of those without it, and have particularly effective influence when they do. For so many of us looking for an opportunity to fight bigotry and bias in the workplace or in our broader culture, we may be missing the opportunity staring back at us in the mirror: using the ordinary nature of who we are as a source of extraordinary power.

For example, psychologists Heather Rasinski and Alexander Czopp looked at how people perceive confrontations about a racially-biased comment. They found white observers were more persuaded by white confronters than by black confronters and rated the black confronters as more rude. Whiteness gave the person more legitimacy than blackness when speaking up on racial bias.

Similarly, scholars David Hekman, Stefanie Johnson, Maw-Der Foo, and Wei Yang studied what happens to people who try to advocate for diversity in the workplace.  Those who were female and nonwhite were rated worse by their bosses than their non-diversity-advocating female and nonwhite counterparts. White and male executives saw no difference in their ratings, whether or not they advocated for diversity. They found the same pattern with hiring decisions. If a white male manager hired someone who looked like him (or someone who did not), it had no impact either way on his performance ratings. But, if a nonwhite male manager hired someone who looked like him, he took a hit for it.  In other words, ordinary privilege—that part of our identities which we think less about—is also the place where we wield outsized influence on behalf of others.

This influence even exists online, as political scientist Kevin Munger showed through a clever experiment on Twitter, focused on people using the n-word in a harassing way towards others online.  Using bots with either black or white identities, he tweeted at the harassers, “Hey man, just remember that there are real people who are hurt when you harass them with that kind of language.”  This mild tweet from a “white” bot who appeared to have 500 followers led to a reduction in the racist online harassment in the seven day period following the tweet, whereas the same tweet from a “black” bot with the same number of followers had little effect (interestingly, only anonymous n-word users were affected; those using what appeared to be a real name and photo were unaffected by the confrontation). If this is the effect a mild tweet from a stranger can have, we have to wonder about the potential impact of our own ordinary privilege.

To use your ordinary privilege, here are some things you can do:

  • First, figure out the parts of your identity that you think about least. Once you’ve pinpointed them, you’ve identified your ordinary privilege.
  • Second, start learning what people who lack that ordinary privilege encounter as challenges at work, at school and in their communities. You can use the Internet as a good starting point for first-person accounts.
  • Third, look for opportunities to speak and act. Confronting people is only one of many ways we can use our ordinary privilege. Instead, we can ask questions, raise issues, and add perspectives that are not organically emerging in discussions at work. We can introduce data, invite people into conversations, and create buzz around ideas. We can amplify the views of people not being heard at meetings, and bring back conversations when someone is interrupted. We can give credit for people’s work and spread the word about their talent.  We can notice when bias is playing out around us, and name it when it happens.
  • Fourth, be thoughtful about moments when you may inadvertently speak over the group you mean to support. It is not unusual to accidentally center ourselves instead of the people to whom we are trying to be an ally, but it is costly. When it happens, step aside or step back, and learn from those whose lives are directly affected by the issue, rather than presenting ourselves as the experts. Take their lead while using your ordinary privilege.

What we think about least may be the place from which we can do the most good. Each of us has some form of ordinary privilege, and that’s good news, because that means almost all of us have more influence than we may realize.

Categories: Blogs

Big Data and Machine Learning Won’t Save Us from Another Financial Crisis

Tue, 09/18/2018 - 09:00
Eric Frommelt/Getty Images

Ten years on from the financial crisis, stock markets are regularly reaching new highs and volatility levels new lows. The financial industry has enthusiastically and profitably embraced big data and computational algorithms, emboldened by the many triumphs of machine learning. However, it is imperative we question the confidence placed in the new generation of quantitative models, innovations which could, as William Dudley warned, “lead to excess and put the [financial] system at risk.”

Eighty years ago, John Maynard Keynes introduced the concept of irreducible uncertainty, distinguishing between events one can reasonably calculate probabilities for, such as the spin of a roulette wheel, and those which remain inherently unknown, such as war in ten years’ time. Today, we face the risk that investors, traders, and regulators are failing to understand the extent to which technological progress is — or more precisely is not — reducing financial uncertainty.

Two areas are of particular concern. First, there are many unsettling parallels between the recent advances in machine learning and algorithmic trading and the explosive growth of financial engineering prior to the crisis. Secondly, we cannot draw comfort simply from more data and greater computing power: statistical theory shows that big data does not necessarily prevent big trouble.

Like today, finance in the 1990s and early 2000s attracted many of the sharpest quantitative minds, who produced remarkable theoretical and methodological advances. Like today, financial engineering around the millennium brought great commercial success: the mathematical tools developed by derivative desks built businesses, boosted profits and delivered superior investment returns. I lived that era in New York, part of a dynamic, entrepreneurial world of advanced probabilistic modeling and unprecedented computational power. We were taming financial uncertainty, or so we believed.

The financial crisis exposed that mindset as a “quant delusion,” an episode which we may now be at risk of repeating. Many modeling assumptions, such as correlations between asset prices, were shown to be badly flawed. Furthermore, foundational underpinnings of quantitative finance — for example, elementary logical bounds on the prices of securities — broke down.  It also became clear that quants had grossly mis-specified the set of possible outcomes, and had calculated conditional probabilities of events, subject to the world staying more or less as they had known it. They made decisions that were exposed as nonsensical once apparently impossible events occurred.

Importantly, there was also a proliferation of what statistician Arthur Dempster has termed “proceduralism”: the rote application of sophisticated techniques, at the expense of qualitative reasoning and subjective judgment, leading to illogical outcomes. An example: banks often adopted different models to price different derivative contracts, leading to an identical product being given two unequal prices by the same institution.

An influx of quantitative talent; rapid technical advances; surging profits: today’s world of quantitative finance echoes that of the millennium. Proceduralism may be even more prevalent now, fueled by the broad success of algorithms and associated competitive pressures to adopt them; and by the regulatory push to validate or “attest to” models, whose results are then vested with unrealistic credibility.

Yes, with bigger data and greater computing power than ten years ago, we can now explore ever larger sets of possible outcomes. But we still do not know to what degree our calculated conditional probabilities differ from actual probabilities. We still do not know which of our assumptions will break down. In fact, as our algorithms become more complex, as with deep learning, it is becoming more difficult to identify gaps in logic that may be embedded within algorithms, or to comprehend when models might badly fail.

Machine learning can be very effective at short-term prediction, using the data and markets we have encountered. But machine learning is not so good at inference, learning from data about underlying science and market mechanisms. Our understanding of markets is still incomplete.

And big data itself may not help, as my Harvard colleague Xiao-Li Meng has recently shown in “Statistical Paradises and Paradoxes in Big Data.” Suppose we want to estimate a property of a large population, for example, the percentage of Trump voters in the U.S. in November 2016. How well we can do this depends on three quantities: the amount of data (the more the better); the variability of the property of interest (if everyone is a Trump voter, the problem is easy); and the quality of the data. Data quality depends on the correlation between the voting intention of a person and whether that person is included in the dataset. If Trump voters are less likely to be included, for example, that may bias the analysis.

Meng shows that data quality dominates data quantity in remarkable ways. For example, suppose we polled 1% of U.S. voters, approximately 2.3 million people, and that the probability of a Trump voter accurately responding is just 0.1% lower than a non-Trump voter. Then the big dataset provides a less reliable estimate of the overall percentage of Trump voters than a simple random sample of just 450 people, where responses are accurate.

The lesson for finance is stark. If our dataset, however large, is in a minimal but systematic way not representative of the population, big data does not preclude big problems. Those who revert to a proceduralist approach of throwing complex algorithms and large datasets at challenging questions are particularly vulnerable. Who can tell how non-representative our data today is in terms of representing the future? Yes, we may never again assume house prices cannot fall simultaneously in every state, but we do not know what other assumptions are implicitly being made.

More than ever, judgment — necessarily subjective and based on experience — will play a significant role in moderating over-reliance on and misuse of quantitative models. The judgment to question even the most successful of algorithms, and to retain humility in the face of irreducible uncertainty, may prove the difference between financial stability and the “horrific damage” of another crisis.

Categories: Blogs

A 4-Step Plan to Make Your Q&A More Audience-Friendly

Tue, 09/18/2018 - 08:00
Dirk Anschutz/Getty Images

The Q&A or fireside chat has become a popular format at events like conferences and employee town-halls, replacing more-formal presentations and panels. The one-on-one format can create a more conversational, interesting, and intimate experience, and has the added benefit that the CEO or luminary being interviewed theoretically doesn’t have to prepare as much.

Despite how effective interviews can be in theory, however, they are often difficult to execute in practice. As a result, audience members are often left feeling disengaged and unsatisfied while guests struggle to inform and engage in a way that resonates.

In our Essentials of Strategic Communication at Stanford’s Graduate School of Business, we’ve begun including advice on how to handle this format effectively to help our students become more confident and compelling communicators. We offer four steps — easily remembered by the acronym FIRE — derived from our teaching and coaching experience.

Framing. In preparing for interviews, most guests ask “What do I want to say?” But the most effective guests ask “What does my audience need to hear?” Since the time of the Greeks, we have known that the best communication is that which is in service of the audience — it answers the questions they have and provides them with the specific insights they’re looking to acquire.

Customizing your content based on your audience matters. Therefore, before any fireside chat or other one-on-one interview, take time to do some reconnaissance and reflection about your audience and frame your content accordingly. Ask the following questions:

  • “What does my audience care about most?”
  • “What motivates them?”
  • “What do they expect to learn or gain?”
  • “What biases or hesitations might they have?”
  • “What knowledge level do they bring to the session?”

If you can’t confidently answer these questions yourself, ask them of the interviewer, event host, or consult the social media of those who will be attending.

You will also benefit by having a clear speaking goal. A good speaking goal is about information, emotion, and action. It answers the following questions about how your audience will leave your fireside chat:

  • What do I want my audience to know?
  • How do I want my audience to feel?
  • What do I want my audience to do?

Your answers to these questions will help inform your content and how it is framed. By understanding your audience and having a clear speaking goal, you can tailor your content for maximum impact — leaving your audience walking away with exactly what they were hoping to acquire and you with what you were hoping to achieve.

Inclusion. The effectiveness of the interview format lies in the sense of intimacy and familiarity they create. We know from research and our own experience that audience inclusion is powerful, leading to more positive perceptions of a speaker, greater motivation to future action, and better recall of content.

A good Q&A invites the audience into the experience.  Two effective ways to do this are by (1) using inclusive language and (2) polling the audience.

For inclusive language, consider referencing the audience directly and using “you” and “we” when possible.  For example you might say…

  • “Like many of you, I…”
  • “We all have…”
  • “Who among us has (hasn’t)…”

For polling, consider in advance what questions you might want to ask the audience. For example, “How many of you have had X experience…?” or “Who can tell me…?” In the former case, be sure to raise your hand as you ask the question so you signal to the audience how you’d like for them to respond. Be sure to comment on whatever answers you get to validate the audience’s involvement and encourage future participation.

If your audience feels included in the conversation, they will be more engaged and responsive to your message.

Rails. To keep a train on track, you need strong rails. Similarly, to keep your content on track, we recommend using a structure to guide you. While many structures exist, such as Problem-Solution-Benefit and Comparison-Contrast-Conclusion, one of our favorite structures is the What? > So What? > Now What? structure.

You start your response by providing your point and giving an example to support it (The What?). Next, you explain why your point is important to the conversation at hand and potentially beyond (The So What?).  Finally, you end by explaining the implications, ramifications, or applications of what you just said (The Now What?).

Using a structure will make it easier for you to develop your content when speaking in a spontaneous manner, make it easier for your audience to follow your response, and allow for clear, concise answers in place of rambling, unfocused ones.

Examples. Chip Heath, a colleague of ours at Stanford, has conducted extensive research on what makes ideas “stick” — that is what makes them memorable, engaging, and inspiring. His number one piece of advice? Make your ideas concrete. That is, take abstract concepts and bring them to life with concrete stories, details, and examples.

During fireside chats and other one-on-one interviews, guests tend to speak at a general  level — to offer concepts and conclusions — without concrete examples and stories (including personal ones) that will help make their content more engaging, understandable, and relatable for their audience.

As you prepare for your next interview, we suggest the following: make a list of all the key points, themes, best practices, etc. you’d like to be prepared to share with your audience. Then go back through that list and for each item, write down a concrete story or example you could share to support it and make it “stickier.” Stories and examples can be real or imagined as well as about you or a third person.

What’s most important is that you make your ideas and messages as concrete as possible by adding vivid details. Doing so will make your content not only more engaging in the moment, but also more memorable and motivating in the days and weeks that follow.

The Original Fireside Chat

Given we practice what we preach, we’ll provide you with an example of how this looks in action (although in this case, it was a kind of a speech rather than an interview).

When Franklin Roosevelt took office in March 1933, one quarter of the nation was unemployed, stocks were down 75%, and across the country people were panicked, quickly pulling their money out of failing banks. He needed to convince Americans to trust him and put their money back in the banks. He gave his first “fireside chat” over the radio just a week after being sworn in. This manner of addressing the public in such an intimate and informal way was described as a “revolutionary experiment.” It was wildly successful. Not only did Roosevelt’s chats attract more listeners than the most popular radio shows of the time and inspire record numbers of fan mail, they also allowed him to establish high levels of trust and support during a time of crisis.

In these addresses, he framed his message accordingly: he understood the public was panicked, so he used clear, concise language and a tone that was comforting. Instead of speaking abstractly about the challenges of the financial system, he used inclusive language: “I want to talk for a few minutes with the people of the United States about banking.” He also used rails to give structure to what he was saying: “I want to tell you what has been done in the last few days, why it was done, and what the next steps are going to be.” He also used examples to great effect: “Let me illustrate with an example. Take the cotton goods industry…”

Knowing what his audience needed paid off. The day after his first address, banks across the country opened to long lines of people waiting to put their money back in. He had restored trust and confidence in a previously insecure public.

Today’s Q&A-based fireside chats can also be a valuable opportunity to inspire, engage, and powerfully connect with an audience. By remembering the principles embodied in the acronym FIRE, you can maximize the value of them for both you and your audience.

Categories: Blogs

Disruptive Startups Get Funding More Easily, but Less of It

Tue, 09/18/2018 - 07:00
Gina Pricope/Getty Images

In the start-up world, the disruptor is the cool kid on the block, the one who’ll change the world — or at least the products you’ll buy and how you buy them. She takes on the grown-ups in suits and shows us all how dumb they are. Customers love her because she makes them feel like rebels (with a cause), suppliers love her because she makes them look smart, and — most importantly — investors love her because she makes them feel they’re putting money into tomorrow’s big player.

That, at least, is what the hype around disruption would have you believe. A new product or technology sells better to all stakeholders if people can be persuaded that it will disrupt the status quo. But does the evidence bear out this belief?  Specifically, does presenting yourself as a disruptor really make it more likely that your startup will get the backing it needs?

To answer this question, we studied 918 startups in Israel seeking a first round of funding. Israel is a cradle of entrepreneurship, with more high-tech startups per capita than any other country. They’ve spawned many unicorns, such as Waze (the driving navigation app acquired in 2013 by Google for $1.3 billion), NDS (the video software provider scooped by Cisco in 2012 for $5 billion), Playtika (the gaming platform bought by Giant Interactive for $4.4 billion in 2016), and Mobileye (the software and chip provider for autonomous vehicles acquired by Intel for $15.3 billion in 2017).

Here’s how we did it. We obtained data from the Startup Nation Central(SNC)—a private non-profit organization that tracks the Israeli startup ecosystem and offers an exhaustive platform for investors to scout for promising startups. Two coders manually assessed if a startup’s profiles did or did not articulate a vision to fundamentally change its industry, disrupt the industry’s existing power structures, or alter the way the industry operates. Each yes answer was accorded one point and each no was assigned a zero value. The total score for each was averaged across the coders, giving the scores a range of between 0 and 3 with 0.5 increments.

And what did we find?  Unfortunately, what we got was a yes but rather than a resounding confirmation or refutation. The results showed that, yes, increasing our measure of a venture’s disruptive vision communication by one standard deviation (0.78) improved the odds of that venture receiving early funding by 22%. But the venture would also very likely find that the amounts it would raise went down by 24% — for a typical Israeli venture that would mean getting $87,000 less in the Seed round, and $361,000 less in the series A round.

That raised an interesting question: Why would investors be more willing to invest and less generous at the same time?To answer this question, we recruited 203 participants with previous investment experiences for an online experiment. We randomly split them into two experimental conditions in which we presented them with an investment opportunity into a venture. The venture was taken from our Israeli sample and was identical in both experimental conditions. The only difference was that we manipulated the venture’s description to present the venture as a disruptor or not. We then asked participants to assess the upside potential of the venture, and to decide whether and how much they’d invest in the venture.

What the experiment revealed was that investors treated disruptive ventures like options.  They wanted the chance to be part of “the next big thing”— a venture that has the potential for extraordinary returns. But they didn’t want too many eggs in any one basket at once.  By investing less in a self-claimed disruptor, investors don’t so much fund the venture as pay for the right to make further investments in the venture in the future, when the risks and uncertainties are better understood and more easily quantified.

Where does this leave the entrepreneur? It all depends on the risks and uncertainties of your venture.  If your venture is a high-risk proposition that might struggle to acquire an investment, then you should have a compelling story that will help convince investors. Screaming disruption everywhere you can will help in that case. But if you feel the venture’s main risks are less in the idea than in its execution — then maybe you should try to avoid making disruption your narrative and talk more about your experience and capabilities.  You’re more likely to get the amount you need.

Categories: Blogs

How to Get Better at Reading People from Different Cultures

Tue, 09/18/2018 - 06:05
Paula Daniëlse/Getty Images

Body language varies significantly across cultures. What is considered rude or foolish in a Nordic country may be welcomed as warm and friendly in an African one. What a Canadian businessperson would perceive as arrogant, an American executive may see as healthy confidence.

But what remains consistent across all known cultures are microexpressions. These brief, involuntary flashes of facial expression reveal our true feelings about another person or situation.

Photos courtesy of the Center For Body Language.

People might try to hide or obscure them in different ways informed by culture, but to a practiced reader the true emotions are always visible. Consider the contrast in expressiveness between Filipino and Japanese people. In the Philippines, showing emotion — both positive and negative — is a sign of openness and honesty. In Japan, the opposite is true. Visible negative emotion is seen as rude or hostile, while expressing too much positive feeling is considered indelicate. However, when we evaluate people from both countries for their microexpressions, we find that they actually experience emotions at more or less the same level of frequency and intensity. It’s just that the Japanese consciously try to mask their reactions, often by smiling, while Filipinos wear their feelings for all the world to see.

The ability to read microexpressions can be useful anywhere — as we’ve previously shown, salespeople who have this knack get better results — but it’s particularly useful in more buttoned-up cultures, where people are careful managers of the physical signals they send out.

You and Your Team Series Working Across Cultures

Here’s another example: A few years ago, my husband and I traveled to Qatar to lead a body language workshop for 200 HR executives. Immediately, cultural norms made it difficult to gauge how the audience was receiving our presentation. Women’s bodies were completely covered, so we couldn’t see their posture or gestures. When I stood on stage with my husband, all the men looked exclusively at him, and all the women looked exclusively at me. But we could read the microexpressions we saw around the room. We knew from the videos we’d previously made of Qataris that the flashes of emotion in their faces reflected the same sentiments we might find from audience members anywhere else in the world. And, so we could calibrate our presentation accordingly, and felt just as comfortable as we would have at home.

Recognizing and interpreting microexpressions takes practice, but there are a few things you can start doing immediately to improve your skills.

First, study the common microexpressions pictured above so you know the hallmarks of each. Disgust, for example, involves down-turned lips, while people feeling contempt might show it by inadvertently pulling one side of the mouth up. Surprise and fear might look similar, but the latter emotion will cause people to pull their brows together.

Second, if you know you’re about to visit or interact with another culture, educate yourself on the local body language — including masking techniques. YouTube is a great tool for this: Find videos of 10 executives from that culture and watch how they communicate.

Third, when you’re in the moment, pay attention. You can’t interpret microexpressions if you don’t notice them. Don’t make your counterpart uncomfortable with an unwavering stare. But do keep your focus on the face.

Fourth, listen to your intuition.When you notice a tiny facial movement, ask yourself: “What could that mean?” Humans are wired to subconsciously detect even the subtlest of emotional flashes, so your gut instinct may be correct.

You might also try to mimic the movementWhen you repeat what you saw — whether it was a quick eyebrow raise or tightening of the lips, it not only gives you more time to think, but also fires the mirror neurons in your brain, making it easier for you to associate the movement you saw with the correct emotion.

If you’re still perplexed, start to exclude emotions. After memorizing the expressions above, you should be able to quickly assess what the facial cue does not mean. For example, if you saw someone’s eyebrows going down, you can exclude surprise, fear, or sadness — all of which are associated with raised eyebrows — and work from there.

If you’re presenting to a crowd, as we were in Qatar, continue to scan the audience for microexpressions. Don’t fixate on one negative look; instead try to discern the sentiments of the majority.

Body language can be cultural, but emotions are universal. Microexpressions reveal someone’s true feelings in a fragment of a second, and so it pays to notice them and calibrate your behavior in cross-cultural interactions accordingly.

Categories: Blogs

Let’s Do Less Dead-End Work

Mon, 09/17/2018 - 14:43

From the Women at Work podcast:

Listen and subscribe to our podcast via Apple Podcasts | Google Podcasts | RSS
Download the Discussion Guide for this episode

Download this podcast

Women are expected and asked to do thankless tasks — order lunch, handle less-valued clients — more than men, and research shows that doing those tasks slows down our career advancement and makes us unhappy at work. We talk about why we wind up with so much office drudgery and how to get some of it off our plates. Guests: Lise Vesterlund and Ruchika Tulshyan.

Could you take notes? Would you mind ordering lunch? We need someone to organize the off-site event — can you do that? Whether you’ve just started your career or are the CEO of the company, if you’re a woman, people expect you to do routine, time-consuming tasks that no one else wants to do.

We talk with University of Pittsburgh economics professor Lise Vesterlund about why women get stuck with — even volunteer for! — tasks that won’t show off our skills or get us promoted, and how that slows down our career advancement and makes us unhappy at work. Women of color are asked to do more low-promotability projects, and we talk with inclusion strategist Ruchika Tulshyan about how they can say no. Lise and Ruchika tell us how they’ve handled these kinds of requests and what managers can do to assign work fairly.


Lise Vesterlund is the Andrew W. Mellon Professor of Economics at the University of Pittsburgh. She is also a research associate with the National Bureau of Economic Research.

Ruchika Tulshyan is the author of The Diversity Advantage: Fixing Gender Inequality in the Workplace and the founder of Candour, an inclusion strategy firm. She is also adjunct faculty at Seattle University.


Email us here:

Our theme music is Matt Hill’s “City In Motion,” provided by Audio Network.

Categories: Blogs

The Best-Performing Emerging Economies Emphasize Competition

Mon, 09/17/2018 - 10:00
Max Mumby/Indigo/Getty Images

Development economists over the ages have puzzled about why some emerging economies perform much better than others over the long term. We have been looking at the same issue in our latest research, and find one element that others haven’t tended to focus on: the often intense competitive dynamics that can be found in the best performing emerging economies—a competitive mindset that has spawned a new generation of productive and battle-hardened companies that aspire to be global champions.

That finding may seem counter-intuitive: don’t many emerging economies nurture and shield their national champions from competition? The short answer we find from our research is: No. In fact, by some measures, the best emerging-market firms are more competitive than firms in advanced economies including the United States and the United Kingdom.

For our research, we looked at 71 emerging economies and identified 18 that achieved rapid and consistent GDP growth over the past 50 and 20 years. They include the usual Asian suspects—China, South Korea, and Singapore—but also less obvious countries including Ethiopia and Vietnam.

When we examined their track record more closely, we found that these 18 “outperformer” countries had twice as many large firms with revenues exceeding $500 million as their peers, relative to the size of their economies. More large companies means the gains are distributed more broadly than would be the case with just a few—but that domestic competition can be ferocious. Indeed, it is much harder for this plethora of emerging-market firms in the outperforming countries to get to the top and then stay there. More than half that reached the top quintile in terms of economic profit generation between 2001 and 2005 had been knocked off their perch a decade later, in 2010-15. By comparison, 62% of incumbents in high-income economies on average remained in the top quintile for the same decade. In the United States, 68% stayed put, and in the United Kingdom it was as many as 76%.

A survey we conducted of companies in seven countries also brought its share of surprises. The top-performing emerging-market firms innovate more aggressively than their advanced economy rivals: 56% of their revenue comes from new products and services, compared with 48% for firms in advanced economies. These firms also invest almost twice as much as their advanced economy peers, measured as a ratio of capital spending to depreciation. And they are nimbler as they do so: on average, they make important investment decisions six to eight weeks faster, or in about 30-40% less time.

Moreover, when it comes to that metric beloved by stock market analysts and investors, total returns to shareholders, these firms also outperformed. Between 2014 and 2016, the top quartile of companies in the best-performing economies generated total return to shareholders of 23% on average, compared with 15% for top-quartile firms in high-income countries.

The ascendancy of emerging-market firms is evident in rankings such as the Fortune Global 500; more than 160 of these firms have joined the list since 2000. While emerging-market firms accounted for about 25% of total global corporate revenue and net income in 2016, they contributed a disproportionate 40% of the revenue and net income growth of all large public companies between 2005 and 2016.

There are some clear lessons here for all economies, not just emerging ones. Allowing and indeed encouraging domestic competition brings results not just for the firms that survive it, but also for the economy as a whole. The successful large firms in the outperforming economies act as catalysts for change, through investment and building capability among their suppliers. Many of these suppliers are small- and medium-sized companies that tend to be less productive than the larger firms, but are nonetheless critical for employment. By bringing them into their ecosystems, the larger competitive firms help instill management and operational best practices, and can accelerate and encourage technology adoption.

While our research found that firm-level innovation is high, we also note that policy plays an important role. In outperforming emerging economies, policy makers work with the private sector to define the development agenda, and they also rationalize regulations and barriers to growth. Yes, some governments do give financial and other support to young companies, with the goal of helping them grow. That has been the case in countries from South Korea to Singapore. However, where they have done so most successfully, the support is time-bound and targeted. The broader aim is to make companies, and the economy as a whole, more competitive.

We can see that clearly when looking at the productivity record of these countries. We decomposed total productivity growth in the economy from 1965 to 2012 across 35 sectors, including 15 manufacturing sectors and 20 service sectors. For most outperformers, we found that long-term growth was overwhelmingly driven by productivity growth within individual sectors rather than from the mix across sectors. In other words, success depends less on finding the right mix of sectors than on identifying sources of competitive advantage—and continuously driving productivity improvements within those sectors.

The finding is yet another sign that competitive dynamics are essential—and that countries that get them right prosper.

Categories: Blogs

Protecting Company Culture Means Having Rules for Email

Mon, 09/17/2018 - 09:00
Simon McGill/Getty Images

A new study out of Virginia Tech University confirms something that just about every knowledge worker already knows: Dealing with after-hours emails produces anxiety that is damaging not only to the worker, but to their family.

One particularly striking finding of this study is that it’s not just the amount of time taken up by reading and answering emails after work that’s stressing out employees (and their partners). In fact, what’s creating more anxiety is just the expectation that an employee will be available for work outside the office.

Take this example: A manager does not expect employees to return her emails during off-hours or while they’re on vacation, but she never explicitly says this. Instead, she assumes they “just know,” and therefore thinks there is no harm in sending messages during these times, because she figures they’ll just be waiting for the employee when he returns. But in fact, the employee doesn’t know, and logs into his email while he’s out of the office (perhaps because he knows others do it). And when he sees an email from his boss, he interprets this to mean that she expects him to respond. This feeds the expectation to check email while he’s away, and the belief is reinforced by the fact that the manager seems to be working at all hours herself. A lack of intention and differing assumptions cause an unhealthy culture to take root.

This is all consistent with what I see as a speaker and trainer on productivity — it’s bad enough that employees feel tethered to their email during the work day, making it hard to get more important — and more satisfying — work done. When they feel pressure to check even during evenings, weekends and vacations, the quality of their work suffers because they never get a chance to rest and recharge their minds. Without mental recovery time, they become less creative, focused and thoughtful. They feel stressed and out of balance — which all set the stage for burnout.

The problem has three components:

  1. Employees habitually check email constantly throughout the day and are unable to “turn off” this behavior simply because they’ve left the office.
  2. Leaders are not immune to #1, and also not intentional about their expectations for after-hours communication. The unofficial policies and practices that spread through the organization come about as a result of the behaviors of leadership, who are unaware that their habits are molding the culture.
  3. Employees assume that if leaders or any other employees in the organization are sending emails after hours, they should be, too.

Each of these components feed the others, creating a cycle that speeds up the pace at the company and contributes to a culture where stress and anxiety thrive. If you’re a manager who’s troubled by this, you can protect your employees and their families from the anxiety caused by the expectation of after-hours availability. The solution must address all three components.

First, you have to clarify your expectations. What managers expect can differ greatly from what employees believe their managers expect, as in the example above.

In the absence of clear expectations, employees will make assumptions about what you expect. You can make your expectations clear — doing everyone a favor — by being explicit. Say something like, “We believe that downtime is important, and we expect you to disconnect from work email on evenings, weekends, and vacations. If something important comes up, we’ll communicate via phone or text.”

What’s important about a statement like that is that it not only clarifies big-picture expectations — about the importance of downtime and disconnecting — it also helps set small-picture expectations about which forms of communication are appropriate in which situations.

I would encourage you to get even more granular: create, clearly communicate, and abide by guidelines for communication even during work hours. Outline which communication channels are appropriate in which situations.  For example, if it’s common during the workday for staff to send emails in the case of urgent or time-sensitive issues, then they can never feel comfortable closing their email client in order to get more important work done. They have to keep one eye on their email at all times, which pulls their attention away from other tasks. This constant distraction undermines their focus and prevents them from practicing attention management, leading to days that feel busy but are not productive. Email was never intended for synchronous communication, and although we treat it that way, it’s ultimately a terrible idea.

Instead, tell them that in the case of an urgent or time-sensitive situation, you want them to send a text or make a phone call (just as during after-hours), or work it out face-to-face. Make it clear that email should only be for non-time-sensitive communications and routine requests, regardless of the day or time. This prevents the habit of constant distraction during work hours, and minimizes the urge to check after-hours. Importantly, you must model this behavior yourself.  If an employee sends you an email containing an urgent request, the only way to drive the message home is if you don’t see it immediately, forcing them to use a more appropriate channel.

Your communication guidelines can go beyond email and the urgent vs. the non-urgent, too — you can set expectations on what meetings are for, how best to use project management tools like Asana, Basecamp, or Trello, and in which situations employees should use company wikis or messaging tools like Slack or Twist. This will help cut down on the number of emails your employees have to respond to.

Clear guidelines will create the space employees need to feel comfortable closing their email client and otherwise controlling their technology so that they can apply the full weight of their concentration to important work, sometimes called “deep work.”

This means leaders need to curb their own late-night email habit, and realize the benefits themselves. And no one, not even the boss, should be required to check work while on vacation. If that doesn’t seem possible at your company, you are likely to have bigger problems than losing out on downtime.

As you implement these changes, you should start to see a shift in your workplace culture. Being “always on” and connected to email 24-7 may feel like you’re being productive, but, as the Virginia Tech research shows, it’s actually increasing employees’ stress and causing conflict within their families, ultimately leading to lower levels of productivity. This is not a sustainable situation for hiring and keeping the best employees, and supporting your organization’s success.

Categories: Blogs

How Customers Come to Think of a Product as an Extension of Themselves

Mon, 09/17/2018 - 08:00

Businesses are constantly vying to capture the attention of potential customers. It’s not easy to do. People are inundated with different brands as they stroll through the streets, scan through their social media newsfeeds, and binge television. The average American is exposed to more than 4,000 ads every day.

A simple concept can help businesses cut through the noise. It’s called psychological ownership. That’s when consumers feel so invested in a product that it becomes an extension of themselves.

Companies that encourage psychological ownership can entice customers to buy more products, at higher prices, and even to willingly promote those products among their friends. But if businesses disrespect this feeling, sales can suffer.

To build psychological ownership, companies must use at least one of three factors: control, investment of self, and intimate knowledge.

Enhancing customer control

One way is to allow customers a hand in forming the product. Consider Threadless, the t-shirt company. Founded in 2000, the online firm allows users to submit t-shirt designs and vote on the best ones. Threadless prints and sells the winners.

This model has been extremely successful. By 2006, the company received 150 T-shirt designs per day and had over 400,000 users voting on shirts. That year, the company sold 60,000 t-shirts per month and boasted a profit margin of 35 %—much higher than many traditional clothing retailers.

Touch also generates a sense of control. Consumers are more likely to buy something if they handle the product first.

That’s easy for brick-and-mortar stores. But in an increasingly digital world, businesses have to get creative. Nordstrom, for example, allows customers to select clothing they’re interested in online and pick a store to try them on. When the customer arrives, the clothes are ready in the dressing room.

Encouraging “investment of self”

Businesses should strive to make products customizable. When consumers can personalize products, they buy more and are happy to recommend those products to friends.

Take Coca-Cola’s 2014 “Share a Coke”campaign. The company’s total volume of soft drinks sold had fallen for 11 years straight. So Coke decided to sell bottles and cans labeled with hundreds of common names. And consumers were invited to request their own customized cans. Sales turned around, rising 2.5 percent in just 12 weeks.

Or consider Great Britain’s tourism campaign. The nation’s tourist authority, VisitBritain, invited Chinese residents to name classic British landmarks in Chinese. They submitted more than 13,000 names and voted on their favorites. The seaside resort Blackpool, for example, was named “A place that is happy to visit” and the famous shopping street Savile Row was named “custom-made rich people street.” Then VisitBritain used these names on social media and websites. The number of Chinese visitors to the United Kingdom increased 27 percent.

Building intimate knowledge

This occurs when customers believe they know every facet of a product or brand so well that they have a special, unique relationship with it. Think about a friend who claims to “discover” a band because they knew about it before any of their peers. Or someone who waits in line for hours for the next iPhone because they want to get it first.

Businesses can cultivate this feeling in many ways. REI—an outdoor supplies company—sells inexpensive co-op memberships, and members enjoy members-only sales, free classes, even in-store “garage sales” of returned merchandise. Realtors offer customers virtual reality tours of hard-to-visit homes, with the additional option to virtually customize a home they are considering. Both of these tactics should elicit feelings of ownership.

The dangers of psychological ownership

Star Wars fans are notorious for their psychological ownership of a film franchise they know intimately. Recently, a group of these fans even launched a campaign to entirely remake the latest sequel—The Last Jedi—because they disliked what it did with “their” brand. The general resentment towards the film showed at the box office; the movie’s sales fell about $200 million short of several Wall Street analysts’ predictions.

As the irate Star Wars fans show, once companies cultivate psychological ownership, they need to respect it. Psychological owners can get defensive—even territorial —about “their” brands.

Tropicana found this out in 2009, when it scrapped its iconic logo of a simple straw in an orange. The redesign turned off a generation of customers who had grown up with the image and felt ownership over the original design.

In less than two months, Tropicana’s sales plummeted 20%. Competitors’ sales increased by double-digits. Tropicana soon went back to its original design.

Opportunities abound for companies to inspire psychological ownership. A furniture store could encourage customers to assemble—with staff assistance, as needed—a small piece of furniture when they first walk into the store. The feeling of accomplishment upon successfully building something would instill a sense of ownership early in the purchase process. Likewise, enticing people to control a product by moving it around on a touch screen would increase online shoppers’ feelings of ownership. Even an animal shelter, by inviting people to submit names online for shelter animals, could get more people to adopt pets!

Companies legally own their brand, but their most devoted customers may own it psychologically. Businesses should cultivate this feeling—and then respect it.

Categories: Blogs

How Companies Can Take a Stand Against Bribery

Mon, 09/17/2018 - 07:00
Bloomberg Creative Photos/Getty Images

In 2016, the International Monetary Fund estimated that corruption amounted to roughly 2% of global economic output — between $1.5 and $2 trillion globally. Consider that in India in 2016, nearly seven in 10 citizens reported paying a bribe to access basic public services such as public schools, public clinics or hospitals, access to official documents, and utilities, according to Transparency International. And despite the many laws against corruption, and increases in enforcement of those laws, bribery in particular continues to thrive and the costs to business and to society continue to escalate.

Since having laws on the books isn’t enough, anti-corruption and anti-bribery efforts need further traction from the private sector. Business needs to play a more powerful role in supporting responsible practices throughout every aspect of their operations. After all, those that find themselves embroiled in bribery scandals, for example, face a host of consequences, including business disruption, steep financial and legal costs, and harm to their brand and reputation.

Companies usually manage bribery and corruption risk through a mix of internal processes, certification requirements, and basic good practices throughout their operations — including with suppliers and vendors. External standards can also be a powerful tool in support of those efforts, helping companies strengthen ethics and compliance practices by offering a clear framework for action. One example of such an external tool is the ISO 37001 Anti-Bribery Management Systems Standard, published by the International Organisation for Standardisation in 2016 and designed by a committee of global business leaders and other stakeholders. The standard offers companies a structure for setting up or benchmarking an effective anti-bribery program aligned with its own risk profile, and building a culture that values ethical behavior.  It outlines a program that can stand alone or be integrated into a company’s existing management system, and offers a common language and approach that stretches across borders and industries. It covers bribery in all of its forms — direct and indirect, inbound and outbound. It does not address fraud, cartels and other anti-trust/competition offenses, money-laundering or other activities related to corrupt practices.

There are five important ways a standard like this can help companies strengthen their practices:

Defining clear roles for boards and top management: The standard focuses on leadership roles as central to an effective anti-corruption system. It spells out the responsibilities of the board and top management, including ensuring that the organization’s strategy and anti-bribery policy are aligned. It also requires that the compliance function be staffed by those with the right skills, status, authority, independence, and resources. Having clearly defined roles and the right resources makes it more likely for anti-bribery and anti-corruption policies to succeed. This is supported by a 2016 report from The Ethisphere Institute and Kroll, which found “a significant correlation between the perception of risk and board-level engagement. The more engaged the board and leadership team were, the more likely respondents were to say they believe their anti-bribery and corruption risk will decrease or remain the same in the coming year.”

Embedding a culture of compliance: The standard’s preventative aspects will support companies’ efforts to build a culture that values ethics and compliance within its operations. In addition to the leadership role requirements, the standard requires communication and training to bolster the compliance program, and continual improvement to ensure that programs do not become stagnant but rather respond to changing risks.

Siemens was able to rebuild trust after a bribery scandal that reached the top of the organization, in part by implementing an effective compliance program. This included strict new anti-corruption compliance processes, appointing competent compliance professionals across the organization, launching comprehensive training and a compliance hotline, and investigating and monitoring to ferret out wrongdoing and ensure continual improvement. Through these efforts, the company sought to move away from a culture that has been characterized as seemingly “openly tolerant of bribes” to one that that is “driven by ethical standards.” Siemens implemented the types of processes required by ISO 37001 (although their work happened before the standard was issued.)

Supporting a consistent approach: Chief Compliance Officers are often monitoring business in more than one location and ensuring a consistent approach is critical. In 2010, during an exercise to review and improve its global anti-corruption compliance program, Ralph Lauren Corporation discovered evidence that its Argentine subsidiary had been paying bribes to officials in the Argentinian government. The company promptly disclosed this information to the U.S. Department of Justice (DoJ) and Securities and Exchange Commission (SEC). In that case, the parent company paid $1.6 million in combined penalties to the DoJ and SEC to resolve the matter. This fine was relatively light due to Ralph Lauren Corporation’s self-disclosure, cooperation, and remediation.

The standard offers a uniform framework with measurable, trackable indicators that will promote consistency organization-wide. The standard intentionally does not prefer the legal regime or regulatory architecture of one country over another, but rather is meant to outline a set of practices that can be used by companies regardless of where they have operations.

Cascading good practices through the supply chain: In addition to having subsidiaries and workers around the globe, many companies today have a complex web of third-party partners that support their business. This carries benefits and risks — bribery by a business partner being one of them. In addition to due diligence, monitoring, and auditing of third parties, the standard can be used by an organization as a tool to measure third party capability and the strength of the third party’s compliance program. This can be done by relying on certification or by asking third parties to demonstrate compliance with the standard. Because the standard is a global tool, developed by a global expert stakeholder group that was not tied to the law or guidance of any one country, it may be more readily accepted by some as an anti-bribery common language.

Competitive advantage: Fighting bribery builds reputation and brand value. Companies that can demonstrate conformity to an internationally-accepted anti-bribery standard may more easily attract business partners and investors who expect greater financial transparency and disclosure of activities to determine bribery risks. According to data collected by the Ethisphere Institute, companies that implement effective programs realize a 10.72% “Ethics Premium”. Research also demonstrates that ethical companies have lower turnover among employees. And consumers are placing a higher and higher value on whether a company has ethical practices, too.

Companies are beginning to see these benefits, and many are using the standard to bolster their efforts. The list of certified companies includes Legg Mason, Alstom, Mabey, and CPA Global among others. Even so, the standard is at an early stage of adoption and it will take more time for it to gain traction. The pace of certifications has been slow to date, perhaps because of the small number of accredited auditors available to perform certifications. The standard may see wider adoption if governments start requiring certification for bidding on public contracts.

We will have to wait and see whether ISO 37001 becomes more widely adopted. In the meantime, as companies use the standard and share their experiences, the more those conversations can help reduce the power of corrupt practices on business around the globe.

Categories: Blogs

Research: Simple Prompts Can Get Women to Negotiate More Like Men, and Vice Versa

Mon, 09/17/2018 - 06:05
Mitch Blunt/Getty Images

Do we lie to get what we want out of negotiations?

That depends, according to forthcoming research I conducted with  Jason Pierce of the University of North Carolina, Greensborough. We found that the likelihood of engaging in unethical behavior during negotiation is related strongly to gender: men are more likely to act deceptively than women are.

The difference in bargaining behavior is linked to negotiators’ sense of competitiveness and empathy. In negotiations, men tend to embrace a competitive mode that motivates unethical behavior to get ahead, whereas women opt for an empathic approach, leading to less deceptive behavior.

But it turns out it is startlingly simple to “activate” the competitiveness and empathic motives.  And, when we activate these different motives, both women and men act more like the other gender in bargaining situations.

Gender and Negotiation

My interest in this research area grew partly out of my own experience as a woman in negotiation situations. As a young professor at the University of Washington, for example, I realized I was taking a passive approach to career advancement, waiting for promotions to come to me rather than asserting myself to create opportunity. That was especially remarkable because I was already a negotiation researcher!

As I studied the relationship between gender and negotiation behavior, I found that even the most qualified, elite professional women—including those with MBAs from top programs and decades of experience—fared worse than their male counterparts at the bargaining table. They didn’t go after favorable terms in the same way as men, helping to explain the gender-based pay gap that remains today.

But how far would either gender go in trying to win a negotiation in which it might be tempting — yet unethical — to deceive?

It’s one thing to get ahead by leaning in, speaking up, and asking for more, as women are increasingly encouraged to do. But it’s quite another to lie outright or misrepresent oneself in a negotiation. Substantial research shows that men set lower ethical standards for themselves, including in bargaining situations: they lie more frequently in negotiation than female counterparts, are more likely to believe misrepresentation is acceptable, and endorse seeking negotiation-related information in unscrupulous ways (such as looking at confidential reports not intended for them).

We built on this research by studying the behaviors associated with unethical negotiation behavior, rather than self-reported attitudes—the focus of most past studies. Specifically, we wanted to look at gender differences in deceptive behavior, the underlying reasons for it, and whether we could motivate both men and women to engage in less—or more—ethical bargaining tactics.

Lies in the Lab

In our first experiment, we brought participants into the lab and asked them to engage in what we framed as a “two-person decision-making task.” Then we gave the focal participant—“Player 1” in our task—an envelope containing cash and told them to communicate to Player 2 (1) the amount of money in the envelope and (2) their proposal for how to split the money. Player 2 was purportedly in another room, and all communication took place through online messaging.

Given Player 1’s information advantage, it was tempting to lie to Player 2, misrepresenting the amount in the envelope to keep more of it for themselves. That’s exactly what happened in many cases: participants acted unethically, to serve their own interest. But we observed a large difference in such behavior by gender. Of our male participants, 44% lied; only 29% of the women did.

To get at the reasons underlying the difference, we asked participants to respond to measures of their general sense of competitiveness (more commonly expressed by men) and empathy (more commonly reported by women). Not surprisingly, men scored higher on competitiveness, while women reported greater empathy levels, helping to explain our findings.

Unleashing the Tiger—or the Empath

Based on the findings from our first experiment, we created a second study, one that placed participants in a decision-making task framed explicitly as competitive, to see if this would increase unethical behavior.

Specifically, participants completed the same money-splitting task as in the first study. But this time we provided some of them with competition-inducing instructions, framing the activity as an “ultimatum game” played against an opponent, with clear “winners” and “losers.”

Now the results changed dramatically: in the competition-inducing condition, 64% of men and 61% of women lied to get ahead, compared to only 49% and 23%, respectively, under a neutral condition similar to that in Experiment 1.

So, even simple cues around competition induced women to adopt the more aggressive negotiation mindset men tend to default to, leading to unethical behavior. We’d “unleashed the tiger” within our female participants, and they behaved more like men.

Next we asked whether we could do the opposite: make men behave more like women in negotiation. We tested that in a third study by seeking to induce empathy in participants playing the same game as before. In the high-empathy condition, participants received a message from Player 2 stating that Player 2 participated in such experiments to buy treats for their grandchildren, while living off their limited retirement income; in the low-empathy condition, the message from Player 2 indicated they used proceeds from experiments to buy themselves items and planned to retire early.

In the low-empathy condition, 44% of men lied, and 21% of women did, similar to previous results in neutral conditions. In the high-empathy condition, only 22% of men acted unethically, and 16% of women, suggesting the empathy we induced led to fairer behavior.

Toward More Ethical Negotiations

Taken together, our findings suggest that under normal conditions, men engage in unethical negotiation tactics more than women do, largely because males tend to be more competitive. Women tend to act more empathically, leading to less deceitful behavior on their part.

But context was critical: even simple changes greatly narrowed the gender gap for behavior, making women act much more like men in negotiation, and vice-versa. The needle moved more toward ethical or unethical behavior, depending on the circumstances.

For women, one takeaway is that we will often find ourselves in situations—negotiations or otherwise—where a sense of empathy motivates fair, ethical behavior that might not be reciprocated by those across the table from us. Be prepared and vigilant about this reality, and keep in mind that certain cues (such as framing a discussion as a competition, even if just to yourself) may unleash your inner tiger.

Men, on the other hand, may benefit from understanding their competition-fueled tendency toward misrepresentative behavior and appreciating its real-life implications. Any ill-gotten win may come at some real cost for others.

More generally, taking steps to reduce competitiveness and enhance empathy in negotiations or other professional settings may increase collaboration and joint problem-solving. When we see ourselves as participants in mutually beneficial interactions, it’s more likely we’ll all come out winners.

Categories: Blogs

How to Tell If You’re Delegating Too Much — and What to Do About It

Fri, 09/14/2018 - 10:00

Everyone knows leaders should delegate to ensure that they are working on the right projects and deliverables.  But if you find yourself frequently miscommunicating with your team on deliverables, hearing about issues at the last minute, and misunderstanding how your team set their priorities, it may be a sign you’ve delegated too much, leaving their employees to feel abandoned and unmotivated. At that point, it’s important to take back responsibility for certain tasks to insure you’re providing your team the guidance and structure they need. Here are three steps you can take.

Take on a symbolic project. Obviously, you don’t want to overcorrect and start doing a myriad of low-level tasks in order to reconnect with your team. But taking on a symbolic project or task can be a visible way of demonstrating your re-engagement, as well as helping the company and advancing your own learning goals. For instance, I coached one senior advertising executive who realized she had delegated too much. She decided to get back into the details by learning a new piece of software. This gave her a new skill to share with other leaders in the company and her own team. Her time spent on the software also helped in the long run because when it was time to delegate, she understood all of the specifics of getting the work accomplished.

Reset with your team. One CTO I coached realized he’d been delegating too much because he no longer had proper visibility into what his teams were working on.  He’d been frustrated that departmental projects he had delegated — such as a dashboard and internal training, (which he felt would differentiate their department in the marketplace) got lost and forgotten with looming client deadlines. To combat this, he scheduled an offsite to reconfirm the vision for the department and get everyone on the same page again about goals and expectations.

He realized through the offsite process that his team hadn’t understood the rationale or urgency behind the internal projects.  Afterward, he could follow up more effectively and make smarter determinations about where he could delegate without going too far, and his team was much more willing to focus on internal projects, as well. 

Recommunicate the vision. The biggest over-delegation risk for leaders is leaving the  vision or culture of the company to others.  Of course, most leaders don’t think they’ve done this. Instead, they believe they’ve delivered and communicated the vision innumerable times. And yet, their teams are confused and missteps occur with delivering the work on a consistent basis. If you’re noticing that output on projects has stalled, there’s excessive disagreement on tasks and process, or unexpected and inconsistent behavior among team members, it may be a sign that you’ve over-delegated the vision to the point where team members feel they’re interpreting it or making it up on their own. A particularly obvious clue is receiving repeated questions from different team members asking you to clarify the vision.

For example, one CMO told me a story of how he had been working on a key partnership initiative for his company. He believed the partnership fit with the overall vision of the company laid out by the CEO. Unfortunately, the CEO had over-delegated the vision to other members of the executive committee and didn’t properly communicate a shift in his revenue strategy. When it was time to present the partnership to the board, the CEO rejected the work because it didn’t track with his new vision and the partnership stalled, wasting the CMO’s time and causing needless conflict and frustration.

As a leader, to combat this form of over-delegation, make sure you’re using every public communication opportunity you have to stress and reinforce the message. For instance, you could remind people about the overarching vision at the beginning of a project, during town halls and other forums, at senior leadership meetings, or periodically through email communications. Without this approach, there can be a cascading effect of morale issues, loss of creativity, and a lack of teamwork.  But most, importantly, there is a loss of credibility for the leader.

While there are times as a leader to step back and delegate to let teams grow, over delegation can backfire.  By using the steps above, you can ensure your department, team, and company are moving in the right direction together.

Categories: Blogs

Do Longer Maternity Leaves Hurt Women’s Careers?

Fri, 09/14/2018 - 08:00
Maskot/Getty Images

Career or child care? It’s an unfortunate dilemma faced by every working woman with a baby on the way. Should she take a lengthy maternity leave, knowing that more time at home can improve the well-being of both mother and child? After all, research shows maternity leaves are related to lower infant mortality and reduced maternal stress. Or should she forego that long maternity leave, knowing that getting back to work quickly will improve her career opportunities?

Around the world, we are seeing a trend towards legislating longer, paid parental leaves for both mothers and fathers. Earlier this year, for example, Canada expanded its paid parental leave program from 35 weeks to 61 weeks; several Scandinavian countries have already made similar moves. These changes are motivated by a progressive concern to improve the work-life balance for working parents and encourage greater parent/child contact in those crucial first months of a newborn’s life. But while the sentiment behind these new policies is well-meaning and commendable, there may be a “dark side” to longer parental leaves.

Most of the research to date in this area has focused on mothers who, in most countries, are still offered more time off than fathers. Even when parental leaves are offered to both parents to share, women tend to take the vast majority of that time, unless the policy reserves specific time for men only (which is still rare). These studies show that women who decide to take a longer time off can expect to pay a price for their commitment to motherhood when they return to work.

Evidence from a variety of countries reveals that the longer new mothers are away from paid work, the less likely they are to be promoted, move into management, or receive a pay raise once their leave is over. They are also at greater risk of being fired or demoted. Length of leave can be a factor in the perceptions of co-workers as well – women who take longer leaves are often seen as less committed to their jobs than women who take much shorter leaves. This trade-off undercuts a major goal of legislating national parental leave policies: ensuring that women don’t have to choose between motherhood and career success.

To tackle this conundrum, our research sought to uncover the mechanisms driving the unintended negative consequences of longer leaves and identify ways in which organizations can help women find a balance between work and childcare. At the time of our study, Canadian parental leave policy allowed for a maximum of 12 months paid leave for women. We conducted three complementary studies to identify and examine perceptions of working women’s agency (the degree to which they are considered ambitious and career-focused), as the motivator for these negative consequences. Our results highlight several ways this issue can be addressed.

First, using lab-based experiments, we tested perceptions of a potential female job candidate based on job applications showing they’d taken a maternity leave of 12 months (which is common in corporate Canada) or a shorter maternity leave of one month. We found those who noted a longer maternity leave on their resume were perceived as less desirable. Interestingly, bias that a woman who takes a longer maternity leave is less committed to her career held equally for male and female participants of the study, suggesting such a preconception is widely held.

Next, we tested how providing background information about a job candidate’s career ambitions and work habits (in this case, a letter from a former supervisor) can affect opinions of her agency when a longer maternity leave was taken. Here we found that negative perceptions of commitment and hireability can be overcome by providing additional information about women’s agency to decision-makers. In other words, when the letter was included, we saw no difference in the longer-leave-taking candidate’s desirability.

Finally, we sought evidence from Canadian workers regarding their views on the role of “keep-in-touch” programs. These are programs that allow parents on leave to stay in contact with their workplace and colleagues while they are away. Often the leave-taker will be paired with a coworker who can, for example, keep them updated on their projects, clients, and other coworkers. In an experiment with a sample of 558 Canadian employees, we found that female applicants who took a 12 month maternity leave were perceived as more agentic, committed to their jobs, and ultimately hireable, when a “keep-in-touch” program was used, compared to when no such program was used. It should be noted that it is not enough for these programs to simply exist; these positive outcomes only occurred when women were making active use of them.

Our work, recently published in the Journal of Applied Psychology, helps explain why longer legislated maternity leaves are related to negative career outcomes for women. We find maternity leave length is perceived as a signal of women’s agency and commitment to the job and thus used to gauge their dedication. In turn, this undermines perceptions of women’s agency, job commitment, and perceived suitability for leadership roles.

Fortunately, our results also point to some ways in which managers, organizations, and women themselves can combat the unintentional negative consequences of longer legislated maternity leaves. For example, managers can provide additional information about women’s agency and career aspirations to counteract negative perceptions among decision-makers and co-workers. Further, the creation and promotion of “keep-in-touch” programs by organizations appears quite promising. While still rare in the work world, “keep-in-touch” programs have been pioneered by some progressive firms in the legal and public relations industries in Canada and Australia as a way to support and retain female employees.

Our work also has implications for policy-makers by showing that longer legislated maternity leaves may unintentionally undermine gender equality by hurting women’s career prospects. Thus, such policies need to be accompanied by additional measures that encourage “keep-in-touch” or related programs. Other potential solutions may be legislating parental leaves reserved for fathers only. Currently only 13% of eligible men use any parental leave in Canada (compared to 91% of eligible new mothers), even though Canada’s leave is supposed to be gender-neutral. Mandating that some portion of parental leave be used by fathers  would encourage more men to take parental leaves, which in turn could reduce the amount of time women are absent from work and also make it more normative for both men and women to use leaves from work to care for their children.

Finally, a few caveats are necessary. Some of our experimental data comes from studies involving university students, who tend to have limited work experience; future research will attempt to study these situations in a wider variety of organizations. In addition, some of our effects appear small. However, the results are still meaningful and powerful because even a slightly lower rating of a woman due to her maternity leave could make a big difference whether that woman is hired or promoted. Bias against mothers in the workforce has been thoroughly documented elsewhere. We also limited our study to women and the effects of maternity leave; future research could include a broader look at the effects on fathers’ careers.

The ability to take one’s full parental leave without suffering diminishing one’s promotion, pay, or leadership prospects is crucial for greater gender equality in the workplace and for helping all working parents, and in particular mothers, achieve greater work-life balance. While HR departments and business leaders have long had this as an item on their agenda, our research provides clear evidence on interventions and programs that can make a real difference for organizations that seek to develop, grow and retain their top talent.

Categories: Blogs

The CEO’s Guide to Retirement

Fri, 09/14/2018 - 07:30
Charles McQuillan/Getty Images

“I don’t quite know what to do next,” said Simon, a media CEO. Simon had been a chief executive for 15 years, and CFO before he was 30. He had turned around private and public companies, quadrupled profits and quintupled revenue. But, with his company recently sold, Simon was considering retirement. Like many CEOs, he had had no time to plan his retirement — all his focus had been on running the company.

Each year, over one hundred CEOs retire from the S&P 1000. Even in the most well-oiled CEO succession processes, one piece is almost always missing: preparing the current CEO for the next phase in his or her career. “I was so focused on the CEO job, I didn’t spend time figuring out what I would do next,” says Scott Davis, former CEO of UPS. Bill Weldon, former CEO of Johnson & Johnson, echoes what most CEOs tell us, “I didn’t do a lot of thinking about post-employment while I was still the CEO. As a result I went off the off ramp at 110 miles an hour and quickly hit zero. Retirement was a black hole.”

On average, CEOs step down at age 62, relatively young by today’s standards. Few have to work for a living. But almost all want to work, and they do. We studied the post-CEO careers of 50 Chief Executives in the Fortune 500, and interviewed 13 of them. Not one retired to the golf course.

While only a few take on another CEO job, almost all former CEOs are contributing to the U.S. economy and to societal wellbeing. More than a quarter of past Fortune 500 CEOs become active in private equity. Over half assume leadership positions at nonprofit organizations and almost all are philanthropic. Two thirds serve on public boards. Many teach and some even write books.

After retirement, CEOs must grapple with a loss of power, prestige, and immense responsibility. As Ron Sugar, former CEO of Northrop Grumman told us, “The first few days, it does feel like maybe you’ve fallen down the elevator shaft.”

It can be especially hard on CEOs who are women. As Anne Mulcahy, former CEO of Xerox warns, “there’s a special place in hell for retired women CEOs. By the time you are at retirement age, your kids have left the home too. It’s double retirement.”

Mulcahy further cautions that, “the things that work for you as CEO work against you as a retiree, such as being in command and your high energy level.” It took her a while to find her footing — she reports “calendar filling.” But not for long, as lead director of Johnson & Johnson, chairman of Save the Children, and a guest lecturer at Harvard, she found work that gave her purpose and passion. “For me, it wasn’t about making money or visibility, but about impact and usefulness.”

Any immediate sense of loss is short-lived. Almost every CEO we interviewed reported great satisfaction in their work lives after being CEO. While deeply proud of their accomplishments in the job, they were relieved at breaking free from the corporate calendar.

CEOs find themselves highly valued after retirement. “It was almost a surprise to me how much you really have to contribute,” says Dick Parsons, former chairman of Citigroup and former chairman and CEO of Time Warner. “But you soon realize: ‘I’ve seen this movie before, I can help here.’”

“It was surprising how quickly opportunity came my way,” agrees Doug Hodge, former CEO of PIMCO. “Within weeks of retiring I had opportunities to join a major board, and exciting invitations from venture capitalists to play an active role in FinTech companies. I have rebooted myself.”

So how do CEOs stand up and find fulfillment in their second phase? Most CEOs we spoke to, like Simon, had no time to plan their retirement while running their companies. In our research, we identified some advice to guide retired CEOs as they plan for “Act II”:

Plan your off-ramp. Ken Chenault, former CEO of American Express, advises CEOs to plan their off ramp while they are still in the CEO job by “identifying the categories of things that are important to them” but not necessarily the “specific opportunities.” CEOs who don’t plan risk “falling into the abyss” warns Chenault. “Take the time to plan what is important to you. Don’t ignore it. It is very important to be thoughtful.” Chenault recommends thinking through one’s business, philanthropic, and family priorities. For example, Chenault knew that in his business work he wanted to focus on digital and technology. “In this way,” Chenault says, “when opportunities came my way I was ready, because I had thought about them.” At the beginning of his off-ramp, Ken did not know exactly what he would do, but he knew what was important to him, which allowed him to move quickly and decisively.

Take your time. The most common CEO error is to rush to fill the void, and accept invitations too quickly. As Ron Sugar says, “For the first six months, say ‘no’ to everything that is offered to you. Usually the first offers you get are not the things you should do.” CEOs told us repeatedly that the only thing they got really wrong was to move too fast — which then required unwinding obligations. For example, one CEO accepted a board seat only to have to wiggle out soon after in favor of a better, larger board opportunity. It would have been wiser to take it slow. Say “no” often, “yes” slowly.

Prepare to deal with yourself. Retirement can put even the most self-assured chief executives in the unfamiliar position of self-questioning and self-doubt. “It prepares you for dealing with yourself,” says one CEO. “You need to know who you are when you’re done being CEO,” says Mulcahy. She adds: “That means reflecting on aspects of your personality and temperament and sometimes modifying some CEO traits.” Parsons told his wife that he could write and teach, and she said, “And what will you do next week?” It took him a while to find his passion. He asked himself, what did he want to do as a kid? He always wanted to run a jazz club, so he opened one. He also bought a vineyard, reasoning, “In the worst case, I could drink the results!” And he loves it: “there I am in the soil, it’s a product, there is dirt under your fingernails, it’s tangible.” This is deeply personal. Ask yourself, “What are the things you will enjoy?” advises Bill Weldon, former CEO of Johnson & Johnson.

Partner with your partner. If a CEO has a significant other, it is critical to “align expectations” — to apply a business term to a family environment. If your spouse has been waiting patiently and now wants to travel, and you want to go back to work, now is the time to develop a shared plan endorsed by your family, or at least understood by them. Every CEO we interviewed planned to spend more time with family, and did. Ken Chenault and his wife scheduled out together time to spend time on activities important to them.

Assume the role of mentor. There is one feeling of loss that CEOs find hard to overcome. It’s not the plane, nor the power. It’s the people. When asked what he missed from the job, Scott Davis said what many echoed, “The people. I developed a lot of comrades over the years, and you don’t see them as much anymore.” Ex-CEOs who embrace mentorship opportunities find a great way to fill this gap, and find fulfillment in passing down their wisdom to an eager student. As Bill Weldon told us, “We have experienced things other people have not. We can draw on those experiences to help other people.” Pat Woertz, former CEO of ADM, sits on the boards of P&G and 3M, is on the Northwestern Hospital board, and advises a startup accelerator in Chicago. She is also mentoring women, “saying yes to more people than I was able to before.”

Plan your allocation of time. Write down the hours/day and days/year you want to work. Leave room, as Ron Sugar reminds us, “for surge capacity” as a portfolio of interesting activities can sometimes lead to unpredicted time requirements. Divide your time between for-profit and not-for-profit. Determine where you want to earn money and where you want to give money. Finally, write down how much time you want to spend with family or personal hobbies. Jeff Kindler, former CEO of Pfizer, notes, “The beauty is you can try things out you haven’t been able to before,” and he asks, “What are the things in your professional life you never got around to?”

Give back. Bill Weldon says it best: “The philanthropic side of retirement provides psychic reward and payback far better than any money we receive in our for-profit work.” This is the time to build a foundation, and begin to distribute your wealth. All of the CEOs we interviewed give back. For example, Ken Chenault chairs the board of the Museum of African American History at the Smithsonian and is a member of the Harvard Corporation; Ron Sugar is trustee of the University of Southern California, director of the Los Angeles Philharmonic Association, member of the UCLA Anderson School of Management’s board of visitors, director of the World Affairs Council of Los Angeles, and national trustee of the Boys and Girls Clubs of America; and Scott Davis serves as a trustee of the Annie E. Casey Foundation, and is a member of The Carter Center Board of Councilors. The 13 former CEOs we interviewed for this article collectively serve on at least 25 philanthropic boards.

With this guidance, CEOs can take one of the hardest steps of their career: exiting. Boards can help by supporting the transition, offering planning guidance, and practical support. Well-performing CEOs who have given their all for the company’s success should be provided critical services, including travel support, IT, and an administrative assistant. Aetna, Verizon, and Northrop Grumman even provided an office — and we think this is best practice.

In return, it is easier for CEOs to leave.

And, as Jeff Kindler told us, “The opportunities are immense. If I had the opportunity to understand what the retirement world would look like before retiring, I would have been able to get my plans together in a matter of months rather than years.”

Categories: Blogs

How a Cyber Attack Could Cause the Next Financial Crisis

Fri, 09/14/2018 - 07:00
Peter Dazeley/Getty Images

Ever since the forced bankruptcy of the investment bank Lehman Brothers triggered the financial crisis 10 years ago, regulators, risk managers, and central bankers around the globe have focused on shoring up banks’ ability to withstand financial shocks.

But the next crisis might not come from a financial shock at all. The more likely culprit: a cyber attack that causes disruptions to financial services capabilities, especially payments systems, around the world.

Criminals have always sought ways to infiltrate financial technology systems. Now, the financial system faces the added risk of becoming collateral damage in a wider attack on critical national infrastructure. Such an attack could shake confidence in the global financial services system, causing banks, businesses and consumers to be stymied, confused or panicked, which in turn could have a major negative impact on economic activity.

Cybercrime alone costs nations more than $1 trillion globally, far more than the record $300 billion of damage due to natural disasters in 2017, according to a recent analysis our firm performed. We ranked cyber attacks as the biggest threat facing the business world today — ahead of terrorism, asset bubbles, and other risks.

An attack on a computer processing or communications network could cause $50 billion to $120 billion of economic damage, a loss ranking somewhere between those of Hurricanes Sandy and Katrina, according to recent estimates. Yet a much broader and more debilitating attack isn’t farfetched. Just last month, the Federal Bureau of Investigation issued a warning to banks about a pending large scale attack known as an ATM “cash-out” strike, in which waves of synchronized fraudulent withdrawals drain bank accounts. In July, meanwhile, it was revealed that hackers working for Russia had easily penetrated the control rooms of US electric utilities and could have caused blackouts.

How might a financial crisis triggered by a cyber attack unfold? A likely scenario would be an attack by a rogue nation or terrorist group on financial institutions or major infrastructure. Inside North Korea, for example, the Lazarus Group, also known as Hidden Cobra, routinely looks for ways to compromise banks and exploit crypto currencies. An attack on a bank, investment fund, custodian firm, ATM network, the interbank messaging network known as SWIFT, or the Federal Reserve itself would represent a direct hit on the financial services system.

Another possibility would be if a so-called hacktivist or “script kiddy” amateur were to use malicious programs to launch a cyber attack without due consideration of the consequences. Such an attack could have a chain reaction, causing damage way beyond the original intent, because rules, battle norms, and principles that are conventional wisdom in most warfare situations but don’t exist in a meaningful way in the digital arena. For example, in 2016 a script kiddie sparked a broad denial-of-service attack impacting Twitter, Spotify, and other well-known internet services as amateurs joined in for mischief purposes.

Whether a major cyber attack is deliberate or somewhat accidental, the damage could be substantial. Most of the ATM networks across North America could freeze. Credit card and other payment systems could fail across entire nations, as happened to the VISA network in the UK in June. Online banking could become inaccessible: no cash, no payments, no reliable information about bank accounts. Banks could lose the ability to transact with one another during a critical period of uncertainty. There could be widespread panic, albeit temporary.

Such an outcome might not cause the sort of long-simmering financial crisis that sparked the Great Recession, because money would likely be restored to banks and payments providers once systems were back online. At the same time, it isn’t clear how a central bank, the traditional financial crisis firefighter, could respond to this type of crisis on short notice. After the problem is fixed and the crisis halted, a daunting task of recovery would loom. It would be even more difficult if data were corrupted, manipulated or rendered inaccessible.

How can we prevent such a scenario? Companies must implement systems that enable them to stop the spread of a cyber attack contagion, and to resume operations as rapidly and smoothly as possible. The financial services industry needs to fully agree on, and be prepared to practice, coordinated response and recovery strategies to prevent systemic breakdowns. Regulators in many nations have been working diligently to prepare for and curtail cyber attacks, but they need to look beyond their own borders and introduce regulations, laws, and cooperative frameworks in unison, like the European Union’s Network and Information Security Directive, which is designed to protect an ever-growing list of critical infrastructure from banking and healthcare systems to online marketplaces and cloud services.

Many of these steps are being undertaken to varying degrees. But more needs to be done. An attack that undermines confidence in those very machines also could have debilitating consequences on the flow of money between consumers, businesses, and financial institutions around the world.

Categories: Blogs