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G100 Network Notebook | February 2016

The Truth About Trump Appeal

What does this year’s political climate say about American society, employment, and business? No one has analyzed this more deeply than AEI scholar Charles Murray in his recent Wall Street Journal essay. Those who dismiss Trump supporters as irrational xenophobes overlook why the unlikely frontrunner continues to resonate, says Murray. An excerpt:

For someone living in a town where the big company has shut the factory and moved the jobs to China, or for a roofer who has watched a contractor hire illegal immigrants…, anger and frustration are rational. Add to this the fact that white working-class men are looked down upon by the elites and get little validation in their own communities for being good providers, fathers and spouses—and that life in their communities is falling apart. To top it off, the party they have voted for in recent decades, the Republicans, hasn’t done a damn thing to help them.

The Zappos “Exodus”

Last year, 30% of Zappos employees left under a generous severance package CEO Tony Hsieh offered to speed reorganization. As the largest company to adopt the self-management system Holacracy, Zappos hopes to trim bureaucracy and aid innovation by eliminating job titles and manager roles. Despite the long road to implementation, Hsieh remains optimistic about the experiment. His detailed interview with Business Insider offers the best explanation to date of the misunderstood approach. Hsieh says:

It’s easy to read the headline, ‘No managers,’ and assume that means no hierarchy. It’s actually a hierarchy of purpose.

Collateral Damage from Dodd-Frank

After passage of Dodd-Frank, community banks lost market share at twice the rate compared to during the financial crisis, warns a recent study of FDIC data. This should concern policymakers since community banks disproportionately serve agriculture, home mortgage, and small business loans, says researcher Marshall Lux, a senior fellow at Harvard’s John F. Kennedy School of Government. He adds:

The rapid rate of consolidation away from community banks that has occurred since Dodd-Frank’s passage is striking given that this regulatory overhaul was billed…to end “too-big-to-fail.”

Designing a Better Commute

Ideo is working to “future-proof” Ford in a world of growing, low-cost transportation options, says New York Times article that offers a unique look at how Ideo creates user empathy to develop beloved products and services. Having followed around commuters in Chicago, London, and Shanghai, for example, the design team found three types of commuters, each with different needs:

Time Trumpers, for whom the only thing that mattered was the speed of the journey, regardless of comfort; Everyday Improvers, who looked for little ways to make a familiar commute more efficient or enjoyable; and Experience Seekers, adventurous spirits who might decide to try a new route and explore a new neighborhood, or walk if the weather was nice.

The Board, Governance, and Cybersecurity

Intense investor scrutiny of board contributions has elevated to prominence the nominating and corporate governance committee, says Spencer Stuart’s list of the top ten board priorities. Thoughtful planning for CEO and board succession, as well as defining risk tolerance to bolster security and innovation, rank among some of the best board practices. An excerpt:

Cyber risk is especially top of mind in terms of its impact on business continuity and brand reputation. … “The board worries about results and brand. With cybersecurity issues, the brand is what is affected immediately and sometimes profoundly,” [Nike director John] Connors said.

One startup breaking ground in mission critical enterprise security is Tanium. A recent white paper by the security firm offers a comprehensive view of the evolving threat landscape. Phil Levis at Stanford’s Secure Internet of Things Project said:

This is the World Wide Web of 1994, 1995. We know it’s going to be big. It’s going to be a security train wreck, much as the Web was for 10 years or so until people figured it out.

The Rise of Entrepreneurism in Japan

An uplifting story in Foreign Affairs magazine describes Japan’s budding entrepreneurial scene in the wake of the Fukushima nuclear disaster and 2008 financial crisis. With assistance from Prime Minister Shinzo Abe’s government, Japanese entrepreneurs are learning from Silicon Valley peers and creating a new business culture that, admittedly, “has a long way to go.” Nevertheless, there are positive signs of a rekindled entrepreneurial spirit – venture capital funding doubled in 2015 to $2 billion and more young Japanese accept startups as a viable alternative to corporate life. Coiney CEO Naoko Samata says:

Series A funding used to be one million dollars or so, but now it’s five to ten million dollars. Start-ups are raising amounts like [in] the US or India. That was impossible three years ago.

How Kroger Drives Growth

Kroger has grown for twelve consecutive years in a competitive market known for thin margins to become the nation’s largest grocery chain. How? Investments in technology and strategic acquisitions broaden an already stellar reputation for customer service. For example, ClickList, an online grocery ordering-and-pickup service, comes with a novel Kroger twist that proves highly popular:

Store employees will pack the items and load them into customers’ cars at a designated time. It costs $4.95 for regular orders and $7.99 for expedited ones. … Customers with young children are highlighting the fact that they don’t have to leave their cars to get their groceries.

Are Diversity, Profitability Linked?

Yes, according to an extensive study by EY and the Peterson Institute for International Economics that discovered a positive correlation between the number of women in leadership roles and profitability. Based on research from 22,000 companies in 91 countries, the study found:

The impact [on firm performance] is greatest for female executive shares, followed by female board shares; the presence of female CEOs has no noticeable effect. This pattern underscores the importance of creating a pipeline of female managers and not simply getting women to the very top. … For profitable firms, a move from no female leaders to 30% representation is associated with a 15% increase in the net revenue margin.

A Historical Perspective on US Growth

A new book by economist Robert Gordon challenges the optimism of technology enthusiasts who foresee economic transformation in the rise of automation. He argues that total factor productivity over the last century tells a much different story. The scale of innovation in the second industrial revolution cannot be repeated, not even by IT and software, the impact of which Gordon finds limited to telecommunications and entertainment. In a praiseworthy review, former Treasury Secretary Larry Summers mostly agrees with Gordon and quotes his dour prediction about economic stagnation:

Headwinds are sufficiently strong to leave virtually no room for growth over the next 25 years in median disposable real income per person.