April 22, 2021

So where’s my prize for thinking long term?

Kevin McDermott
Principal

When Emmanuel Faber took over as CEO and chairman of food giant Danone in 2014 he drew applause for his long-term vision of sustainable, environmentally conscious food production.  This spring his board fired him. Danone’s share price went up.

At General Motors CEO Mary Barra laid out a plan last winter for abandoning gasoline-powered cars by 2035 and going all in on electric vehicles.  GM’s share price went up.  So far Barra gets to keep her job.

What was the difference?  Maybe one CEO painted the rewards of thinking long term better than the other.

Aspiration is a starting place.  But it is not an argument.  When a senior team talks about the future it needs to answer the most human of questions: If I do what you’re asking what do I get?

In FSG’s experience clarity and candor are essential elements.  Clarity about the business case.  Candor about the risks and the business plan for managing them.

Emmanuel Faber promised Danone would become “the world’s largest public benefit corporation,” a term the meaning of which is hard to pin down.  Meanwhile the company announced five restructuring plans in the past seven years.  It was hard for stakeholders—shareowners, employees, suppliers—to follow the growth story.

A growth story is part of a business case for change.  A good one is part fear and part promise—fear of irrelevance on one hand and the promise of getting out in front of change on the other.  We have known a climate crisis was looming for 40 years, for example, but until we were directly persuaded of its negative effects it was hard to make the case for surrendering near-term comforts.

In GM’s case, Mary Barra is not being visionary.  She is convincing her organization and her shareholders that the age of the combustion engine is closing—not eventually but just over the next horizon.  Growing demand for EVs can be demonstrated.  Battery technology is rapidly advancing.  Barra is building a GM for the auto industry that’s coming, not for the one we all grow up in.  (In Barra’s case literally.  Not only is she a GM lifer but her father worked building Pontiacs.  Picture the cultural wrench she contends with in reimagining her organization.)

Making GM’s challenge especially interesting will be making sense of a century of sunk costs under the new vision.  That is a problem tech companies, which boast of their agility, do not have.  If you are building software your invested capital is radically less than if you are building SUVs.

Resisting foresight

A problem all of us contend with is the human trait of valuing present returns over future promises.  This is the reason stakeholders in an enterprise so often resist the implications of strategic foresight. Their concern, even when it is unspoken, is that readying for the future limits an organization’s ability to compete right now.  And right now can feel like all that matters.

When we served a military client, for example, the quandary for the command was to get ambitious mid-level officers to take on big projects for which measurable results might not be evident for years.  Not surprisingly, many preferred quick, sure hits that promised a less hazardous path to promotion.  We have seen similar dilemmas at big professional-services firms.  In both cases the rewards system discouraged risk-taking and getting out in front of change.

Investors are similarly trained to want results in the near term.  Mary Barra’s ability to sell the rewards of investing in the future will be put to the test if GM’s share price suffers.  So far it has not, but these are early days.

One way to win shareholder support is to keep raising the dividend or to pursue stock buybacks that dress up earnings per share. That's what IBM did when investors grew impatient with the slow pace of CEO Ginni Rometty’s grand strategy of reinvention.  Soon enough investors see through the game.  They want evidence of a believable growth plan.

A CEO with present-minded shareholders might take her company private, which is cumbersome but gaining in popularity.  Maybe the CEO can win rule changes to limit the obstructionism of activist investors.  (It is worth noting here that Emmanuel Faber was forced out of his job by pressure from Bluebell Capital Partners, which was impatient with Danone’s recent financial performance.)  Or maybe in describing the vision of the future, the CEO can make the case for scrapping the concept of the vertically integrated company as we know it, and invent a new path for creating rewards.

Pick at random any company with a history of sustained innovation. The FANG stocks will serve.  What their leadership has in common is a record of making a convincing case for simultaneously building new products and building a new kind of market, a market suited to a new economy.  That is what Mary Barra will need to do as well if she wants to take her stakeholder audience with her into the future.

Comments  | 

Kevin McDermott
From the April 21st edition of Motor Authority: "Every New Cadillac Will Be Electric". https://bit.ly/3sMa7d8 The future comes at us fast.
Patrick Marren
Gets right to the heart of how difficult it is for leaders to sell planning for long-term survival.
The Emmanuel Faber case at Danone shows that CEOs committed to sustainable business practices – especially in the food industry – are often caught in a losing race against time. Investments take time to blossom and Wall Street is impatient. Frank Van Gansbeke writing in the March 20th Forbes argues that this short-termism is intensified by high-frequency trading and Alternative Trading Systems. Markets cut no slack for underperforming firms -- even those with the noblest of intentions.
Joe DuFresne
That impatience is not just found from the marketplace. Governmental organizations' stakeholders are equally impatient for long-term transformation to bear fruit. It's more than just politics that make it so, but also the pace of the news cycle and the public's attention span.
Alex Marren
Very insightful and thought provoking article - especially points around selling value of investments in future Something that we deal with every day in shaping path for our business

Thoughts?