The Art and Science of the Strategy of People
In this Issue CEO Interviews with:
Bill McDermott, CEO, SAP
Clarke Murphy, CEO, Russell Reynolds Associates
Ira Melnitsky, CEO, Tourneau
Dr. Martine Rothblatt, Founder & CEO, United Therapeutics
Linda Zecher, President & CEO, Houghton Mifflin Harcourt
Maria Rodale, Chairman & CEO, Rodale
Stephen Joyce, President & CEO, Choice Hotels
Bob Forrester, President & CEO, Newman’s Own
Tom Doctoroff, President & CEO, JWT Asia Pacific
Edie Rodriguez, President, Crystal Cruises
Companies In This Issue....
SAP (NYSE:SAP), founded in 1972 and headquartered in Walldorf, Germany, is a market leader in enterprise application software and helps companies of all sizes and industries innovate through simplification. The company has locations in more than 130 countries, with over 263,000 customers and 68,800 employees. At the close of fiscal year 2013, revenue for SAP was $16.9 billion Euro.
Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for chief executive officers, boards of directors and key roles within the C-suite. With 350 consultants in 44 offices around the world, the firm works closely with both public and private organizations across all industries and regions. Russell Reynolds Associates helps their clients build boards and executive teams that can meet the challenges and opportunities presented by the digital, economic, environmental and political trends that are reshaping the global business environment.
Tourneau began in 1900, when the Tourneau family established a watch-selling business in Western Europe. Since that time, Tourneau LLC has expanded and now owns and operates a chain of watch retail stores for men and women in the United States. It also operates an e-commerce site. The company is based in New York, NY with retail stores in Arizona, California, Florida, Georgia, Hawaii, Illinois, Massachusetts, Nevada, New Jersey, New York, Pennsylvania, Texas, and Virginia. In addition, Tourneau has a watch repair facility in Long Island City, New York.
United Therapeutics Corporation (NASDAQ:UTHR) is a publicly-traded biotechnology company focused on the development and commercialization of unique products to address the unmet medical needs of patients with chronic and life-threatening conditions. The company was incorporated in 1996 and is headquartered in Silver Spring, MD.
Houghton Mifflin Harcourt (NASDAQ: HMHC) is a180-year-old educational and trade publisher in the United States, headquartered in Boston’s Back Bay. It publishes textbooks, instructional technology materials, assessments, reference works, and fiction and non-fiction for both young readers and adults. The company employs over 4,000 people.
CEO, Russell Reynolds Associates
The Art and Science of the Strategy of People
Clarke Murphy is the Chief Executive Officer of Russell Reynolds Associates and serves on the Board of Directors. Prior to his appointment as CEO, he was the Global Leader of the firm's CEO/Board Services Practice.
While at Russell Reynolds Associates, Clarke has conducted a number of significant projects in the industry, including board of director searches for Wells Fargo, UnitedHealth Group and MSCI. He also has conducted CEO assignments for MasterCard, Genworth Financial, Aramark and Duke Energy, among others. In addition, he has led notable searches in the private equity industry, including searches for The Carlyle Group and Warburg Pincus. Clarke has more than 25 years of experience in the executive recruiting industry, joining Russell Reynolds Associates in 1988. Now based in New York, he earlier spent time in the firm's Frankfurt office and later in London, where he served as Deputy Country Manager. He also has acted as Head of the Americas. Prior to joining Russell Reynolds Associates, Clarke was a commercial banking officer in the Corporate Banking Division of Manufacturers Hanover Trust Co. in New York.
Clarke is a member of the Council on Foreign Relations, as well as a member of the Board of Directors for the New York City Ballet. Previously, he served as a member of the Board of Trustees of the Convent of the Sacred Heart school and is a former Trustee of the College Foundation of the University of Virginia (UVA).
Clarke received his B.A. in history from the University of Virginia.
“Our business has changed, in that we are as much in the retention business as we are in the recruiting business.” - Clarke Murphy
Robert Reiss: Russell Reynolds Associates is a very well-known entity in the CEO world. How do you differentiate yourself?
Clarke Murphy: This probably is the most frequently asked question. I guess there are two things: First, our business has changed, in that we are as much in the retention business as we are in the recruiting business, helping clients not just to react to their problem today to solve an issue recruiting someone new but to make sure they are retaining the best people, and, competitively, do they have the best people?
So it is less reactive and more forward-looking, helping our clients to prepare and build their business going forward. It is a different orientation to helping a client solve a problem.
Second is our corporate structure; it is a privately held partnership. We can take a longer-term view about our own firm, where this is an industry that is largely “eat what you kill.”
People tend to focus on the fee for now. It’s just the way it is. Ours is a firm based on collaboration. Going back to the founding of the firm, we have focused on many people working together to solve a problem for a client across offices or across practices rather than one person trying to get the most out of each year. It’s a fundamentally different structure.
You headed up the CEO/Board Practice prior to becoming CEO, and you also are a CEO, which provides you with a unique perspective. What is it you are hearing most from CEOs that keeps them up at night?
It will sound like a cliché, but it’s not. Almost every single CEO or board member I meet says, “I don’t have enough good people. I have plenty of capital. I have investors who want to do more with me. The world is clearly different from 2010 and now has more growth opportunities than we’ve seen in six years, but I can’t get enough people or keep my best people.” That, to me, is the biggest issue.
Let’s discuss small companies before we go to large companies. If someone needs to hire a CFO, what advice do you have for getting the right person?
Midsized companies, and even a lot of family owned companies, don’t have the room for bench strength. So each hire has to be a success because the cost of the bad hire in a midsized company is brutal. So we tend to focus on the resume and the technical skills. But you have to equally focus on the cultural fit of a person– who can have the most incredible resume in the world or maybe worked for one of your competitors at one point–and evaluate if he or she is going to get along with others on your management team.
Personally, I think–particularly for a midsized company–you have to have the third and fourth meetings out of the office, out of the conference room. Not just over a meal, but take a walk, play golf or do something for a number of hours outside a business setting to get to know a candidate better because the company can’t afford a hire who can fail in an organization of that size.
How do you bring that to your organization? How do you hire and build the right culture at Russell Reynolds Associates?
I am a huge believer in competitive sports. I realize that people who play team sports have won and lost and that they typically like winning more than they like losing. They also understand how to play in a group setting, which is very important at Russell Reynolds. Everybody has a different role. Everyone has different strengths and weaknesses. Another basic principle of our culture is that you return your clients’ calls first, and you return your colleagues’ calls second to help each other because, particularly in today’s world with information sharing, the knowledge transfer helps us get things done so much faster.
So to me, people who have played competitive sports have an advantage. They very possibly have been in a service business already in their life, whether having been a waitress in high school or working in a professional service business after college. Most important to me is that they are intellectually curious because we have to get up to speed on different companies and different industries really quickly, and our job is not to find the known quantity and see if they’re available. We persuade the best people why they should be interested in our clients’ opportunity and then see if they fit.
If you don’t have an intellectual curiosity, you are not going to go find that person who doesn’t want to move, who is not on LinkedIn, who, theoretically, is not available. We recruit people. We don’t place them like a chess piece.
Let’s talk about digital. The whole world is changing. What do you see happening that is impacting the talent world?
To state the obvious, the pace of change has never been so rapid or so accelerated as the world we are living in today. A couple of years ago, we saw digital transformation as pretty much the core platform of how we could help our clients, whether it was in the United States or elsewhere. I don’t mean an iPhone app. I’m talking about midsized industrial businesses looking at the supply chain in a different way. We are talking about international metals and mining and drilling companies operating in a different way.
We put every single person in our firm through intense training around digital transformation business models. Thus we are able to help our clients with digital– not just those in consumer electronics or high tech but those in industrial, healthcare or consumer durables businesses as well. We say, “Look at what’s happening in other entities.” We know the impact digital is making because the people we are recruiting as a chief digital officer or, increasingly, a board member who has digital experience has been game changing.
“The ability to get to people faster—suppliers or customers—and to enhance the profitability is connected with having a digital strategy.” - Clarke Murphy
When I speak with CEOs, they usually say they learn from other CEOs and other industries. Do you see that?
Yes. We had a client in Spain that we digitally trained last spring. People realized they are in a very oldfashioned industry. Six or seven months later, they were still looking at the business from a technology framework, which was bits and bytes, not from a digital perspective. In fact, we then led a series of off-sites around how we look differently at what the roles are and what people need to do.
Do you have any quick advice on digital for CEOs?
People think of digital as consumer electronics only. But it is much more than that. It is a fundamental strategic change in your supply chain, in your operations, and how you communicate and interact with customers and suppliers. Many people think of it as revenue enhancement, but it also is cost reduction. So the ability to get to people faster–suppliers or customers—and to enhance the profitability is connected with having a digital strategy.
In terms of digital maturity, where are most companies, and what are the different elements of strategy that they should focus on to build the right team?
The United States and the United Kingdom, and maybe the Scandinavian countries, are quite far ahead of everyone else. Clearly, those that are large cap or venture backed are very large and very small, respectively. The large have capital, and the small are nimble enough to make the necessary changes. I think the midsized company is learning what digital means to the business and how an organization needs to create change. Initially, it is strategic change, and then it becomes operating change.
Let’s talk about the strategic change, the operating change, the implications and what people need to look for.
Strategically, people should be trying to see the impact of what some of the implementation of digital can be on their industry. For an insurance company, this might be thinking about preventive maintenance or putting into a car a digital transfer that says, “Take a different route to avoid icy roads that might cause an accident.” In a healthcare company, it might be getting information much faster. From a processing standpoint, it might be eliminating all paper and going electronic, which is the simplest point, but also it is getting communications faster. It might be a supplier that is going straight from point of sale through the supply chain that eliminates three or four steps. It might be a billing cycle that eliminates two or three steps. It might be reaching people with proactive ideas to get a quicker reaction.
So what are we doing to improve these things competitively and strategically? It is looking at the structure of the firm, which largely is resistant to change because people think it’s a change in technology. It’s not. It’s a fundamental difference of elimination through technology.
“We now are deluged with companies saying, ‘Add another asset to the board who strictly focuses on the transformation in our industry.” - Clarke Murphy
What advice do you have on how boards become more effective in this new digital world?
Going back almost three years, the most forwardthinking companies were adding a digital director. Many companies around the world said that was a bad idea because a single-purpose director is not the role of a board–you can hire a consultant. But the pace of change has been so fast that directors didn’t have time to have a digital study conducted for them, as they might have in strategy or in cost cutting or in marketing. So we now are deluged with companies saying, “Add another asset to the board who strictly focuses on the transformation in our industry.” Again, it can be across any industry–it isn’t high tech only.
If you were advising someone going to college, are there any specific majors you would recommend?
I, personally, have many nieces and nephews who are in college right now. Whether they’re studying applied sciences or marketing, I tell them to go to work for digital agencies in their summer jobs. They should jump into things that are going on that are digitally related. However, unless one is studying applied math or engineering and is looking at the back end, which probably is the way to go, I think the marketing aspects hold a lot of promise.
Let’s talk about your background; you majored in history at UVA.
How does that tie in?
Well, I don’t know if it does tie in. I’ve always been fascinated with history. I think that you do learn from the past, unlike a stock price where past behavior does not predict future behavior. In history, past behavior does predict future behavior. So in our business, we are studying how people react, how they make decisions and how they perform under pressure because that will predict how they likely will perform in the future.
How do you maintain the culture at Russell Reynolds Associates?
Well, you will laugh, but it is the same way we advise our clients. It is all about people. We spend a great deal of time nurturing our employees. We probably have one of the lowest turnover rates in the partner ranks of our firm in the industry. We look at the life cycle of someone joining this firm from the day of the first interview so the candidate understands well what we want to do and what we stand for. We’re the only firm that doesn’t pay people on commission or formula. Ours is about how a group of people makes things happen faster.
I love team sports, quite frankly. People understand winning and losing; they understand their role on a team–and that’s what we do here. You get solutions faster with groups of people.
How do you know in business whether you’re winning or losing?
About 75% of the clients with whom we work ask us to come back again. We look at return rates of business, repeat business and win rates on pitches. As you know, there is an old adage: “You’d rather do business with someone the second, third, fourth or fifth time than keep going out to find a new customer.”
“I love team sports, quite frankly. People understand winning and losing; they understand their role on a team—and that’s what we do here. You get solutions faster with groups of people.” - Clarke Murphy
In leadership philosophy, is there something you learn from sports that is fundamental to your belief of what makes an effective leader?
Yes. You can’t have all captains or all quarterbacks on the team. If I’m working with an industrial client and we’re conducting a CFO search, the point about teaming is critical. We’ll have someone out of our CFO Practice teamed up with the head of our industrial business because they jointly are going to better understand the client company and what works. So the CFO consultant will know the technical skill set that makes someone a good candidate; and the industrial consultant will know the company’s culture well and will be able to evaluate whether or not that candidate would fit. So the teamwork is what our role requires. Our CFO consultant is looking for technical skills. Our industrial consultant is looking for the cultural fit.
Eric Spiegel, President and CEO of Siemens USA, who played football in college, told me, “Part of the key is every role has its importance, and you have to know that.”
That’s correct. My great passion is racing sailboats. If everything goes perfectly, you do well, but if just one person doesn’t do his or her job, the whole thing stops.
Was there one pivotal point where your career escalated from there to where you became CEO?
For me, it was during the financial crisis. We were doing a great deal of board and CEO recruiting under tremendous pressure for companies in trouble. I realized that every board member is human. Each one said, “Oh my gosh, what do we do?” It changed the outlook of my work–and now the firm’s work–in helping them prepare for the future and not react to the current situation. That was the fundamental difference about bringing information and knowledge across industries or across borders, saying, “Here is what’s up. This is what you need to know about. Here is how others are winning.” And that was fundamentally a shift that occurred in how we oriented our firm.
It has been great having you on “The CEO Show,” Clarke.
It has been a pleasure to be here. I appreciate your time.
Robert Reiss and Clarke Murphy Interview aired 08/24/2014