♦  Executive Management Research

The Global Business Agenda

No doubt, the effects of the economic downturn during 2001-2002, combined with the headwinds of globalization (and an uncertain geopolitical environment) has made many C-Team executives reluctant to put their large balance sheet positions to work. However, that reluctance to spend appears to be waning, with the productivity miracle of the past 10 or more years beginning to running out of gas - on top of the need to drive top-line revenue in an increasingly competitive global economy. In this sense, the data suggests that we may be seeing a shift to spending money rather than saving money, as CEOs and their C-Team colleagues - cautiously - begin to commit cash that had previously either sat idly on the sidelines, or had been redistributed to shareholders (in the form of corporate stock buy-back programs).

We anticipate that this spending will likely come in the form of both continuing M&A activity (to help buy market share) as well as a potential up-tick in capital investment spending, although top line capital spending forecasts for 2007 thus far do not yet fully support this scenario. With information technology representing nearly 50 percent of non-farm capital spending in the US, any acceleration in this area would have a profound impact on the technology sector - especially as it concerns key infrastructure and integration investments.

from C-Team Research: Growth and Innovation Driving the Global Business Agenda (ST-1507)

Mergers and Acquisitions

Survey respondents report that their M&A integrations are more successful for targets over $1 billion in sales than for targets under $100 million in sales (Chart 4). Large integrations might be more likely to succeed than smaller operations because they are, more often than not, led by a senior business manager who can mobilize the resources needed and pilot the entire range of activities affected. A small acquisition, on the other hand, might be given to an inexperienced, high-potential manager as her or his first real business challenge, which could translate into a lack of access to and support from M&A experts. Of course, large acquisitions do not occur as often as small ones, so the chances of keeping a large "integration engine" employed are low. Since a large acquisition only occurs at SC Johnson every two to three years, the company does not have a permanent M&A integration team. Instead, an ad hoc M&A integration team is assembled for each large acquisition. If corporate needs to mobilize many resources for a large acquisition, it can also pull together a sizable integration team.

from Strategic Mergers and Acquisitions: Creating Tools and Capabilities for Successful Integration (CB-1401)

Institutional Investing

Overall, pension funds held a total of 38.9 percent of all institutional assets in 2005, up from 32.6 percent in 1980 (see Table 3 and Chart 4). This increase occurred primarily from 1980 to 1990, peaking at 42.5 percent in 1995 and declining since then. Of the total pension fund assets of $9.4 trillion in 2005, private trusteed (primarily corporate) funds held $4.8 trillion, or 51 percent, while state and local funds held $2.7 trillion, or 29 percent.

Within the mix of pension fund assets, however, state and local pension funds have a smaller - albeit more rapidly growing - asset base compared with private trusteed pension funds. State and local pension funds have gradually increased their share of total institutional investor assets, from 7.4 percent in 1980 to 11.2 percent in 2005, remaining steady since then. In the last decade, the share of private trusteed funds has hovered in the 22 to 25 percent range - a small increase from their 19.2 percent share in 1980. Private trusteed funds declined to 19.8 percent of total institutional investor assets in 2005, down from their peak of 24.4 percent in 1995.

Investment companies enjoyed the most dramatic increase in their share of total institutional investor assets, which grew from 2.6 percent in 1980 to 23.3 percent in 2000, and to 24.9 percent in 2005. During this period, open-end mutual funds accounted for the largest segment of investment company assets.

from The 2007 Institutional Investment Report (CB-1400)

Enterprise Risk Management

While companies are adopting a variety of approaches to manage risk and new practices are publicized regularly, it has become clear that ERM should not be reduced to yet another loss-prevention compliance exercise.

For members of The Conference Board working group, this means being aware of the potential hidden in a business risk so that ERM may be used effectively as a tool to identify long-term strategic opportunities and elevate them to the attention of senior executives and the board. In this report, the potential benefit that the company may derive from undertaking a calculated risk is referred to as upside risk. On the other hand, those events assessed by the firm as negative or requiring a mitigation or avoidance response are termed downside risks.

The working group discussed two facets of any risk management activity: a preventive, control-based aspect and a forward-looking and entrepreneurial aspect. Traditional risk management solutions tend to focus on negative events and often rely on diligent corporate compliance programs to control their occurrence. The downside of this approach is that the company may, over time, develop a risk-averse culture. Given its emphasis on strategy and the coherent use of risk appetite and tolerance metrics, ERM can help the corporation find a better balance between loss-prevention, risk-mitigation efforts and risk-taking entrepreneurial endeavors.

from Emerging Governance Practices in Enterprise Risk Management (CB-1398)

Executive Development

The transition from leading other mangers to leading a function is often the first time in one’s career that a person has management responsibility for unfamiliar activities. Thus, it’s a critical, and often difficult, juncture for people in building their leadership skills. The leader can’t answer all the questions anymore and may feel that his or her technical expertise is diminished. Note that the person who is most expert in a function is by no means necessarily best suited to leader it. The leader must come to understand and value unfamiliar forms of work. The leader must also take a broader, longer-term, and more strategic perspective in order to manage the interfaces with other functions within the context of overall business strategy. Many potential leaders struggle or reach their limits at this point. Therefore it’s an important place both for career support for the promising and career redirection for those unlikely to thrive.

The next transition, to leading a business, is one of the most gratifying for most leaders. They get to "run their own show," with all of the responsibility and potential for personal success that goes with it. The individual must be direction setter, integrator, and communicator - capable of leading other leaders and inspiring high performance, while also making the tough strategic decisions and taking decisive action. The individual must also have developed the personal presence, respect and confidence to function as a member of the corporate executive team.

The last transition in the leadership pipeline is to a CEO or Chairman of a multi-business enterprise. The perspective becomes global, and the leader must oversee the development of vision as well as strategy. New responsibility includes making decisions on resource allocation across the enterprise’s - and other people’s - businesses.

from Building Executive Bench Strength: Ensuring Leadership Agility in Complex Times (CG-4906)

Corporate Performance Measurement

The next important compliance requirement for the financial services industry will be MiFID (Markets in Financial Instruments Directive) which replaces the existing Investment Services Directive (ISD) for investment intermediaries and financial markets. MiFID introduces more extensive compliance requirements, in particular in relation to their conduct of business and internal organisation. MiFID is part of the European Union’s Financial Services Action Plan (FSAP), which is designed to create a single market in financial services.

Expect innovative vendors to develop specific CPM applications where there is a clear and substantive link between performance management and a industry-specific reporting requirement. Now even generic CPM solutions include measures relating to corporate governance and corporate social responsibility. Industry sector CPM solutions such as emissions and environmental management in the energy sector, or hospital waiting lists in healthcare, will become more commonplace. Execuvue has a hospitality solution for hotels that tracks "rev PAR" (revenue per available room) for example.

from Corporate Performance Management (BL-5550)