It’s a well-known paradox. Most executives are committed to the idea of maximizing long-term shareholder value, but when they want to track and improve performance, they focus on a dizzying variety of short-term measures (and acronyms). ROA. ROC. TSR. EBIT. EBITDA. CAR. EPS. We could go on.
As cities reopen even while global COVID-19 cases continue to grow, most people are wondering when things will truly get back to normal. In a TED2020 talk on Monday, economist Mariana Mazzucato said that it’s the wrong question to ask. “Really, my view is that we need to do everything we can not to go back to normal, because normal was part of the problem,” she told the virtual audience.
SARS is credited with being one of the accelerators for the adoption of e-commerce in China and the rise of Alibaba. We should not expect that the resolution of the Covid-19 epidemic will be a return to a 2019 reality.
Jack Welch was heralded by many as the greatest leader of his era. As CEO of General Electric from 1981 to 2001, he transformed it from a company known for appliances and lightbulbs to a multinational corporation that stretched into financial services and media as well as industrial products. He was initially criticized for cost-cutting and layoffs, which earned him the moniker “Neutron Jack,” but as GE’s revenues expanded and its share price soared in the ensuing years, he was lauded. In recent years, many have questioned his strategy, leadership style, and legacy. Was he too hard-nosed?
Since the middle of the 1990s productivity growth in southern Europe has been much lower than in other developed countries. Figure 1 shows this by plotting aggregate productivity, measured as real GDP per hour worked (net of non-IT capital deepening), for six OECD countries.1 Between 1995 and 2015, productivity grew by 1.1% per year in Germany, and by 1.4% per year in the US, but by 0.5% per year in Portugal and only 0.1% per year in Italy and Spain.
On August 19 the Business Roundtable issued an open letter titled “Statement on the Purpose of a Corporation.” One of the preeminent business lobbies in the United States, the Business Roundtable (BR) includes the CEOs of leading U.S. companies from Apple to Walmart.
When Greek astronomer Hipparchus invented the arithmetic mean, he created a lastingly useful mathematical tool for summarizing distributions of different values. But in contrast to macro-economics, strategy has never been about averages. Strategy is about defying the powerful forces of commoditization and reversion to the mean by being exceptional in some way.
When the 2010s began, the world’s 10 most valuable public companies by market capitalisation were based in five countries, only two of them were in the tech sector, and none was worth more than $400 billion. Today, all of the top 10 are in the US and China, the majority are tech companies, and some at least temporarily have surpassed $1 trillion in value. (Based on market capitalization at the end of 2018 Q3).
The average lifespan of a U.S. S&P 500 company has fallen by 80% in the last 80 years (from 67 to 15 years), and 76% of UK FTSE 100 companies have disappeared in the last 30 years. In stark contrast, organizations in other sectors celebrate their 100th birthday and look like they’ll be here forever. How do they do it? And what can business learn from them?
A consistent picture emerges from lists of top CEOs. In HBR’s Best-Performing CEOs ranking, Pablo Isla of Inditex, the parent company of Zara, Ajay Banga of Mastercard and Bernard Arnault of LVMH stand out for both performance and longevity. Between the three of them, these CEOs have served for 50 years marked by strong performance.
