RETURN TO INSIGHTS
Natalie Horbachevsky
G100 Network Notebook | April 2017

How an Icon Stays Agile
To the surprise of some, Ford has pulled ahead in the driverless car race, thanks to AI investments and acquisitions of ride-sharing and lidar startups, says Wired:

“That may sound all kinds of wrong to anyone who has seen Uber, Waymo, and Tesla flaunt their tech, and regards Detroit’s old guard as ill-prepared for the robotic future. But it’s the state of the race according to Navigant Research, whose newly released “leaderboard” report ranks these players not just on their ability to make a car drive itself, but on their ability to bring that car to the mass market.”

Expect progress in autonomous driving to significantly disrupt secondary markets, says Andreessen Horowitz partner Benedict Evans. He points out that food, beverage, and tobacco will be heavily affected, alongside other structural transformations:

“One needs to start thinking much more generally, not just about cars, trucks and roads but cities, land use and real-estate. In fact, one needs to think about cities. Cars have remade cities over the past century, and if cars are now going to change entirely, cities will change too.”

Why Management Systems Matter

Formal people processes – tracking employee development, linking promotions to performance, and setting clear goals – have a greater impact on business performance than R&D, employee skill level, and IT improvement. In Bloomberg, Peter Orszag explains a new study that tracked management practices at 32,000 manufacturing plants in more than 10,000 companies:

“The plants practicing more structured performance-oriented management are more productive, innovative and profitable. Every 10% increase in a plant’s management index is associated with a 14% increase in labor productivity, for example. And the relationships hold over time: The more performance-oriented a plant becomes, the more productive it is.”

Defining Gender Diversity on Boards

Chairman roles for women board directors are mostly limited to corporate responsibility, human resources, and corporate governance, per research from Deb Henretta, G100 Senior Advisor, and professor Kimberly A. Whitler. They find that women board directors in Fortune 500 companies are underrepresented in the “prestige” chairing posts for committees such as compensation and strategy. Henretta warns against fragmentation in board composition, as women’s representation grows beyond 20% of all directors:

“As we get to a fair share of women on boards, we should be looking to get a fair share of representation across all the committees. We shouldn’t have the male committees and the female committees.”

Transforming Healthcare, One Genome at a Time

Four years ago, biotech company 23andMe turned heads with their direct-to-consumer genetic tests that determine disease risks with a saliva sample. Shortly thereafter, the FDA placed a moratorium on these tests, a ruling that the agency recently overturned. This serves as a big win for Anne Wojcicki, CEO of 23andMe, who is leading efforts to increase transparency and customization in healthcare. Her lecture at Stanford portrays an industry ripe for disruption and explains what to expect in the future:

“Drug discovery today is mostly done in mouse models, and part of what we are disrupting is that we start with the human. … Starting with the human and tons of data, our hypothesis has a higher likelihood of success in drug development than the hypothesis that came out of mice.”

How to Respond to Digital Disruption

Digital disruptors have already captured 47% of global digital revenue, says a new piece in MIT Sloan Management Review, forcing incumbents to rethink the speed and scale with which they respond to digital upstarts. The article’s authors offer tactics for companies fighting off digital threats, including experimenting with business models, as Norwegian media group Schibsted did on seeing a dip in classified ad buys in their newspaper:

“Rather than sit idly and witness the erosion of one of its most important revenue streams, Schibsted pulled the rug right out from under its own feet by moving its entire classified business to a free, online marketplace. Today, more than 80% of the group’s earnings come from commissions on sales from its consumer e-commerce platform. In some countries such as France, Schibsted’s online marketplace is larger than the original online attacker, eBay Inc.”

The Oracle of Seattle

Jeff Bezos’s annual shareholder letter is a must read for every business leader. The latest details Amazon’s obsessive customer focus, warns against management by proxy, and explains how the company will stave off decline with machine learning and AI. Part of Bezos’s formula is making high-quality, high-velocity decisions. He shares his philosophy:

• Make a decision once you have 70% of the information you desire. Waiting for more indicates you’re acting too slowly
• Disagree and commit. If you genuinely disagree with your team’s decision, voice your opposition candidly—then sincerely commit to supporting their efforts if they choose to proceed.

Hotbeds of Corporate Social Activism

Nearly 90% of the large and midsize companies outspoken about President Trump’s travel ban call blue states home, according to Weber Shandwick. Corporate America is also taking a new tack in expressing its stance:

“In 84% of instances, it was the CEO directly who took the stand… What marked a particular shift from previous instances of executive activism was the large number of companies—48% of them—that took specific action in response to the ban, rather than simply issuing a corporate statement, tweet or employee memo.”

Do Board Directors Make Good CEOs?

From the Rock Center for Corporate Governance at Stanford, a study of independent directors-turned-CEOs in Fortune 1000 companies between 2005 and 2016 found that 64% of such appointments were spurred by a performance-related termination. Companies who place a successor with “inside-outside” experience in the role, however, may be disappointed with the results:

“We found that the directors-turned-CEO who served on an interim basis remained CEO for 174 days (just shy of 6 months) on average; directors permanently named to the CEO position remained CEO for only 3.3 years on average, compared to an average tenure of 8 years among all public company CEOs.”

A New Framework for Corporate Governance

The long-held belief that “shareholders own the corporation” goes back to Milton Friedman but also underpins many public displays of activism. This broken agency model of shareholder-ownership works against a company’s long -term interests, argue Harvard Business School professors Joseph L. Bower and Lynn S. Paine. They propose a new model of corporate governance that acknowledges managers as fiduciaries and extends the view on the company’s role in society:

“Rigid adherence to the model by companies uniformly across the economy could easily result in even more pressure for current earnings, less investment in R&D and in people, fewer transformational strategies and innovative business models, and further wealth flowing to sophisticated investors at the expense of ordinary investors and everyone else.”