Perspectives from Global Business Leaders For most chief executives, there is no end to things that must be done today. Or tomorrow. Or by the end of the quarter. Those things are obvious, they’re ever present, and they often yield fast results. What’s much more difficult for many CEOs is determining what they need to do in the long term. Many things on that list are intangible, hard to quantify in the dollars and euros of global commerce, and easy to put off. But long-term issues left unattended have a way of sneaking up on you very tangibly, right now, today, and the decisions you end up making in haste leave you with problems that linger for decades to come. Then there’s always the issue of trade-offs. CEOs have to fight fires; how can you ensure that this doesn’t consume all of your energy? And how can you be sure that your short-term measures don’t have unwanted long-term consequences? To help readers think through what it takes to manage for the long term, HBR Senior Editors David Champion and Steven Prokesch, and Executive Director Vincent Dessain and Research Assistant Ane Damgaard Jensen of Harvard Business School’s Europe Research Center, in Paris, interviewed four top executives of global companies. The essays that form this article are based on the transcripts of those interviews. In the first essay, veteran CEO Maurice Lévy, who has over the past 20 years turned the French advertising agency Publicis Groupe into the fourth largest agency in the world, points out that a company’s long-term future can be secured only by making the right decisions today. He is followed by Mike Eskew, chairman and CEO of United Parcel Service, a global provider of logistics and package-delivery services, who emphasizes the importance of staying true to your vision and values over the long haul, however difficult that might be. In the third perspective, Wulf H. Bernotat, CEO of E.ON, one of Europe’s largest energy suppliers, offers a sobering assessment of the challenges facing business leaders and politicians as they look for ways to balance high energy needs against environmental damage. Our final perspective comes from Marianne Barner, director of corporate communications and the ombudsman for children’s issues at Swedish furniture retailer IKEA, who offers more specific guidance on how corporations can contribute to the improvement of the environment and society in general. None of these perspectives offers a complete overview of what it means to manage for the long term—there is simply too much territory for that. Instead, each focuses on just one part of it. Nor do the perspectives offer definitive answers; rather, they provide a general sense of the terrain and its challenges, and the kinds of decisions and trade-offs you will face while striving to secure your company’s long-term future. Maurice Lévy is the chairman and CEO of Publicis Groupe, the world’s fourth largest advertising group, based in Paris. Building the future is really about building the present. Yes, you must be able to see where you want to go, but you will never get there if you spend too much time only looking toward it. Instead, the decisions you make and the people you work with today are what will get you to where you need to be—never lose touch with them. And to build the present, a business leader must be careful to stay close to the front line—the people who deal with your customers and markets. That’s particularly true in a service business like ours, where, in a sense, others map out your long-term future. Today, four global groups, of which we are one, dominate the advertising industry. That’s a direct consequence of our clients’ decision to develop global businesses. If Publicis had not gone global as well, we couldn’t have given clients the global service they now demand—and we wouldn’t be here today. The trick, as in everything, was in knowing when to make our moves. Given that we had no control over our clients’ pace of globalization—let alone our competitors’ plans—we couldn’t go global according to a fixed schedule. We had to seize good acquisition opportunities, such as our purchase of Saatchi & Saatchi in 2000, as they presented themselves. The temptation in these situations is to move as quickly as possible. But that would have been just as bad as moving too late. Having a widespread network with common clients is a result of moving at the right time. Managing such a global group of ad agencies would have crippled us financially had it not been for the glue of the common clients. Creative businesses like ours have a natural tendency to latch onto new ideas, and moving forward prematurely is an ever-present danger. In the mid- to late 1990s, there was a lot of buzz about the Internet; most people thought that it would quickly become the dominant medium of communication. Over the long term, that’s probably what will happen, but at the time, we believed that it would be hard to change people’s consumption and information-gathering habits and, so, we refrained from investing heavily in Internet-advertising capabilities. For a while there, it looked as though we had missed some good opportunities, but after the bubble burst, we ended up looking clever. How do we decide exactly which moves to make? We hold strong views and enjoy a lively debate. I was always arguing with my predecessor and mentor, Marcel Bleustein-Blanchet, the founder of Publicis. Those exchanges could get quite heated; I would often stalk back to my office, slam the door, and refuse to speak to him for two or three days. Most of the ideas discussed at Publicis Groupe in Paris originate from the agencies in the field. The executive committee is not always the best place to smell the future, and we should accept that. Our job is to listen and to interpret what we hear from people working and talking in the field. All of our subsidiary businesses have regional committees, and they share information and try to see how to transfer ideas across cultures: Will this beer campaign in Brazil work in South Africa, or will that French soap campaign succeed in Russia? As this work percolates, we can start to pick out broader, global patterns, keeping ourselves ahead of the curve, but not too far ahead. The executive committee is not always the best place to smell the future, and we should accept that. I think the fact that we are led less by the central office and systems than are our American counterparts also has contributed to our success. We learned this the hard way, following our purchase of Farner, a Swiss network that is based mainly in German-speaking countries. At the time we bought the company in 1973, we were the number four advertising agency in Germany. By 1979, we had lost every piece of business that Farner had handled. Why? Those of us in Paris had thought that being one of Europe’s top creative agencies, as well as the new owners, we had the right to tell Farner’s people how to manage the details of their business. Predictably, the Farner people left and took their clients—who were perfectly happy with their work—with them. Two other pieces of advice. First, for service companies to survive over the long term, managers must be willing to turn down business that they don’t understand. Early in my tenure as CEO, one of my managers asked me to look over a potentially lucrative piece of business in the financial sector: He didn’t fully understand what the client was trying to sell. When I had the client come in to talk to me about it, the description wasn’t reassuring. I concluded that we could not accept the business, and the client went elsewhere. Two years later the company collapsed and the client was in jail—and the agency that had taken on the account also folded. Second, companies that survive have leaders who know when to step aside. I’ve been CEO for about 20 years, and in that time we’ve changed the company completely. It’s been a great experience and, I think, a great achievement. But I’m also aware that being the right man for the past 20 years doesn’t necessarily make me the right man for the next 20 years—or even the best person to decide who is the right person for the future. That’s why I plan to stand back from the decision concerning my successor, who will take over in 2010. I’ll present two or three candidates to the board and, with the board’s agreement, give them opportunities to demonstrate their capabilities. The candidates and their visions of the future will be very different from one another, giving the board a real choice. Mike Eskew is the chairman and CEO of United Parcel Service, a global provider of logistics and delivery services headquartered in Atlanta. Companies that become slaves to the short term are the ones most likely to fail in this age of globalization, just-in-time outsourcing, rapid technological change, and empowered consumers. You cannot simply create solutions for your customers week by week. You have to prepare for what they will need in five or ten years from now, too, and that takes research, effort, and scenario planning. You also must have the mettle to stick with your vision. United Parcel Service’s expansion beyond North America is a case in point. In the mid-1970s, we saw the world was slowly growing more interconnected and interdependent and concluded that we had to get a foothold in the international marketplace. Today, our fastest-growing and most profitable business is international small packages. But it took more than 20 years for those international operations to produce consistent profits, partly because of our heavy investments in the expansion during that period. Another reason, frankly, was the need to experiment and learn from our mistakes. I know because I was on the team in 1976 that started our operation in Germany, which was our first outside North America. We rushed in with a kick-the-door-in strategy that depended on a U.S.-centric platform and then learned the hard way that we couldn’t impose expatriate managers and U.S. procedures on a foreign operation—that we needed to adapt our way of doing things to the local culture and practices. But we did learn. Rather than abandon our vision in the face of losses, we persisted. We applied those same lessons when we started expanding around the world in the early 1980s. Our fastest-growing and most profitable business today, international small packages, took more than 20 years to produce consistent profits. It’s true that we were a private company then—UPS went public in 1999. But being a public company has not fundamentally changed our willingness or our ability to invest for the long term. We have found that by communicating and executing our long-term strategy effectively, we can attract investors who will stick with us for the long haul. Over the past five years, we have invested $26 billion in capital expenditures, acquisitions, dividends, and share repurchases—all to enhance the long-term value for share owners. Today, we are well on our way to transforming UPS from a company that satisfies customers’ small-package-delivery needs to one that enables global commerce by providing logistics and distribution solutions to customers ranging from individuals to multinational corporations. The unmatched global infrastructure that those investments created gives UPS a distinct competitive advantage. Our high-tech, integrated network allows us to offer industry-leading products—like our Delivery Intercept service to stop and reroute packages already in our system—and new tracking and alerting systems to deal more easily with cross-border moves through customs. Our infrastructure and business model have produced consistent and superior returns. That said, a long-term vision and strategy cannot be an excuse for compromising on how you serve customers in the here and now. You also must execute well every day. This takes ambidextrous leadership. It involves making sure all of our 427,700 employees understand where we’re going and what each needs to do today and tomorrow to get us there. That, of course, is one of those things that sounds easy but is a huge challenge. It requires relentless communication, which is a big part of my job. Perhaps more important, it requires a culture based on an authentic respect for employees and customers. We have such a culture. It’s one of our greatest competitive advantages, and I consider the job of nurturing that culture one of my key responsibilities. Three pillars of our culture are training, employee stock ownership, and promotion from within. We’re famous for the extreme care we take in designing job processes and measuring performance (if it moves, we measure it). But this approach works only if people know how to do their jobs, which is why we spend more than $400 million every year on training. Our highly trained workforce is a crucial element of our business model, which helps explain why we want people to spend their careers at UPS. We encourage them to stay by promoting from within whenever possible. (Ten of the 12 members of our Management Committee began their UPS careers in entry-level positions.) Encouraging employees to own UPS stock is a philosophy that dates back to 1927, when our founder, Jim Casey, instituted a policy that UPS should be “owned by its managers and managed by its owners.” Today, all of our U.S. employees—including hourly workers—and many of our international employees can purchase stock at a discounted price, and at least half of every manager’s bonus is paid in UPS shares. These policies have empowered employees, produced a management turnover rate in the low single digits, and provided us with a cadre of superb frontline managers. The loyalty and expertise of our employees in general and our frontline managers in particular allow us to adapt on a daily basis to most situations and to consistently excel in serving customers. There are plenty of managers who profess a belief in serving customers, innovating, empowering employees, and making all employees feel like owners. These are more than words for us: They represent our way of life. We sincerely believe these attitudes and approaches are good for business. They’re why UPS, which turns 100 in August, is still growing. Wulf H. Bernotat is the CEO of E.ON, one of Europe’s largest energy companies, based in Düsseldorf, Germany. We all know the main contributors to carbon dioxide emissions: Europe, the United States, China, India, and Russia. The sheer size of these economies—and the expected growth rates in the developing ones—makes avoiding an increase in global CO2 emissions unlikely in the short term. That’s why we need to manage that increase carefully. Those of us in the energy industry can do a lot about it, and we’re already making progress. E.ON is working on a design for a gas-fired power station that will convert 60% of the gas consumed into energy. A couple of coal projects hope to reach efficiency rates of 46%, and other projects that aim for efficiency rates approaching 50% are already under way. By achieving those kinds of numbers in countries like Russia or China, where power stations have efficiency rates of 35% or less, we could reduce CO2 growth rates significantly and immediately. E.ON is also investing €8 billion in sustainable and new energy technology between now and 2012. We’re researching and developing clean coal technology that could create a new generation of power stations worldwide. And we’re planning to build more large-scale offshore wind farms in the UK and Germany. As for consumption, we have to start educating people that energy is a scarce resource to be used as efficiently as possible. When I walk into a hotel room in the United States, for example, I always find all the lights switched on. Worse, there’s no main switch, requiring you to turn off each light individually when you leave. As an energy provider, we have to be at the forefront of that education. E.ON has already invested a great deal of time showing our customers—individual home owners and large corporations alike—how to cut down on unnecessary energy consumption. We also teach communities and schoolchildren about responsible energy use and conservation. We have to start educating people that energy is a scarce resource to be used as efficiently as possible. We must be realistic, though, about how much businesses can do. There is plenty of talk in the press about switching to a renewable and clean energy source like wind or solar or geothermal power. But it will take a long time and many billions of euros before such alternatives can serve as the mainstay of a power grid. With coal, you can rely on your power stations at all times, and you can switch gas on and off to manage fluctuations in demand. But due to the poor design and planning regime for energy in general, currently Germany must run power stations in parallel with wind farms to make up for sudden changes in our generation of wind power. There’s nuclear energy, of course, which is emission free and reliable. But nuclear is not a total solution because not all countries that are capable of managing a nuclear program, including Germany, want to invest in it. The truth is, if the German people don’t start switching off lights and living in an environmentally responsible way, we will be forced to use such sources. What is clear is that a diverse and reliable mix of energy generation—from solar power to nuclear power—is the only way to ensure a secure supply while protecting our environment. That said, finding a long-term solution is also a political challenge, not only a business one, and the developed world has to take the lead. Countries like China, India, and Russia argue that their per capita emission levels are much lower than Europe’s or the United States’. They are also already doing a lot—for example, China sets higher standards for car emissions than the United States does. What’s more, such countries believe—justifiably in my view—that they are entitled to achieve the same level of prosperity that the United States and Europe have achieved. When it comes to reducing emissions, the United States can afford the most and does the least. In the short term, Americans must think seriously about their state-based infrastructure and regulatory framework, which breed inefficiencies. Considering that California’s consumer-led price regulation forced utilities to skimp on investing in new plants and infrastructure, however, I’m not optimistic about the country’s ability to assure a reliable energy supply, let alone an environmentally friendly one. Europe isn’t doing much better. It seems to me that, realistically, only five or six of the 27 EU members even take the issue seriously—and those five or six don’t seem all that committed. Moreover, the German government, which provides about €400 million for the development of renewable energy technology, should ask whether that is really enough for such a rich country. One of Europe’s greatest problems is the lack of consensus about what kind of energy industry we want and how to achieve it while balancing Europe-wide and country-specific climate change targets. For example, for about 20 years now, governments have tried to break up the big utilities to bring about price reductions through competition. Then when Russia turned off the gas pipeline to Ukraine in 2006 for a couple of days, security of supply topped the political bill. People started worrying about dependence on Russia for supplies. All of a sudden, encouraging the development of large energy suppliers like E.ON, which can negotiate on more equal terms with the likes of Gazprom, Russia’s giant gas supplier, seemed sensible. And all the talk about climate change militates against fragmentation as well: How can small suppliers mobilize the large-scale investments needed to deal with climate change? The 2005 creation of the Emissions Trading System is Europe’s greatest achievement in this area. Granted, ETS got off to a rocky start because trading liquidity has been slow to build. But if the U.S. experiment with sulfur dioxide emissions trading is any indication, the market will pick up as financial institutions assume a larger role. The real benefit of this market is that it puts a price on carbon emissions. By tightening the link between environmental concern and business performance, the market will make it easier for companies like E.ON to borrow against future savings in carbon emissions to finance current investments in less carbon-intensive power stations. More fundamentally, putting a price on carbon will give managers dollar or euro numbers for their environmental objectives that are as solid as any of the other variables to which they manage. Above all, we need a stable, long-term regulatory framework (and targets) to allow companies like E.ON to invest in technology and infrastructure that will help protect our environment and ensure a reliable energy supply today and tomorrow. Marianne Barner is the director of corporate communications and the ombudsman for children’s issues at IKEA, a global home furniture retailer founded in Sweden. Corporate social responsibility is part of our daily business. IKEA has set a sustainability objective requiring that all our activities have an overall positive impact on people and the environment. We have a list of key performance indicators to measure our progress on CSR issues, such as the environment. Of course, it’s not easy to link our CSR performance directly to financial performance, but we believe that our efforts have a positive impact on the numbers. Since we’re not a public company, I feel that the link between financials and CSR progress is less of an issue for us. Our mission is to create a better everyday life for the many—the people we aim to serve—which has made it easy for us to incorporate social and environmental goals into our strategic planning. It means that we have to reflect what our customers and other stakeholders value. In the 1980s, in the wake of a scare in Denmark about the harmful effects of formaldehydes used in manufacturing furniture, we started paying close attention to the materials and processes our suppliers used in the manufacture of the goods we sell. Child labor, which is a major concern of ours, surfaced at the beginning of the 1990s, following the 1989 Convention on the Rights of the Child. We also focus heavily on sustainable forestry, as you would expect from a furniture supplier that uses a lot of wood. Our mission is to create a better everyday life for the people we aim to serve, which has made it easy for us to incorporate social and environmental goals into our strategic planning. Geographically, IKEA focuses on where it can make a difference. We obviously can’t save 250 million children from exploitation, but changing the lives of 80,000 children in, say, Uttar Pradesh is still a big accomplishment. To help us in these tasks, we’ve partnered with NGOs such as Save the Children and UNICEF as well as the WWF. We’re also in touch with Greenpeace. Save the Children in particular helped us formulate our strategy on preventing child labor. It pointed out to us that all actions should be in the best interests of the child. That principle helps us to determine what to do when we find an individual child employed at a supplier and, more broadly, what we can do in the community. A child working in a factory may serve the short-term interests of the child’s family but not the child’s own interests. And offered a choice, most parents would not send their children to work. Our partnerships with NGOs are a relatively small part of how we are making ourselves a socially responsible company. More important is what we do in development and design, where keeping prices low and meeting our CSR goals requires some clever thinking. We also have to exercise control over our suppliers, to ensure that they are adhering to our product specifications and codes of conduct. This sounds a little like policing and, inevitably, there’s an element of that, but increasingly they’re willing and able to own the compliance themselves. Obviously, it helps when you are a large and long-term customer, and that’s one reason why we’ve been consolidating our business, bringing the number of our suppliers down from 2,500 to 1,300 or so over the past few years. Going forward, we will reflect the growing concern in the developed world about climate change. Climate change has become a dinner-table conversation topic everywhere. There’s a lot to do in this area. We are building roughly 20 new stores a year and our design decisions—such as the lightbulbs we use—can make a difference to our CO2 emissions. Down the line, we’re looking at alternative transportation for our delivery services—IKEA Switzerland, for example, is considering the use of electric cars for home delivery. And in building new stores, we’re looking at locations with transportation options other than using a car. Our goal is to become 100% reliant on renewable energy for our energy needs and to cut overall energy consumption by 25%. So far, our biggest problem in embedding CSR has been communicating to our people what we’re doing. Like most large retailers, we have a high staff turnover in the stores. And the plight of children can seem remote. But when it comes to climate change, I think everyone will get engaged. It hits us all so directly. We offered screenings of Al Gore’s film An Inconvenient Truth in some of our units, and the interest was incredible. No company will be able to shirk social responsibility. My advice to managers is that becoming a socially responsible corporation takes longer than you think and involves not a giant leap but thousands of small steps.
