Monthly Archives: January 2017

Selling at Home and Abroad

The world used to be simpler for defense contractors. For most of the industry’s history, companies did business primarily with their own country’s military and the governments of close allies. This was especially true of the large aerospace and defense (A&D) companies in the United States and Europe. Until the 2000s, large defense contractors were the norm in this industry, adapting their business directly to their home country’s military and relying on just a few international exports. In effect, they were big fish in a very clearly defined pond. They had a small number of specialized customers with large budgets and highly specialized means of selling to them.

But starting in the 1990s, the context began to shift — and now it is extremely complex. Military buyers want more value for their money. Those in emerging economies want more production in their countries. Though there is much talk of expanding military budgets (for example, in the United States), there is increasing emphasis on smaller, nimbler technologies designed to combat a wider range of threats, many of them asymmetric. Many countries have shifted their priorities away from expensive heavy technology such as fighter planes to more flexible equipment, including autonomous systems, electronics, and cybersecurity. The industry is thus full of new Silicon Valley–style companies that have fewer close ties to their home country’s militaries as well as business models that require them to look for sales in a broader group of countries such as the Middle East, India, Turkey, South Korea, and Japan.

Defense contractors are now reinventing themselves as local businesses with global interests — a very complex endeavor. One sign of this shift is the large number of cross-boundary joint ventures involving A&D contractors. For example, Boeing (in the U.S.) and Tata Advanced Systems (in India) have agreed to coproduce Boeing AH-64 Apache helicopter fuselages and other aero structures; eventually, Tata’s Hyderabad-based production facility will be the sole global producer of the fuselages. Similarly, a Northrop Grumman joint venture in Saudi Arabia is designing systems and technology for high-end security systems to protect critical infrastructure. In this arrangement, U.S.-derived technology and staffers are augmented by Saudi engineers and selected partners from other Saudi defense-related enterprises. Another Saudi arrangement involves Britain’s BAE Systems, which has a wide-ranging deal to provide electrical engineering know-how, IT systems, and training for both military and industrial development in Saudi Arabia. In Japan, Lockheed Martin, Mitsubishi, and Sampa Kogyo K.K. have formed a joint venture that will work with government military experts to design combat systems for the Japan Maritime Self-Defense Force (JMSDF).

CEOs Less Ethical Than in the Past

The job of a chief executive officer at a large publicly held company may seem to be quite comfortable — high pay, excellent benefits, elevated social status, and access to private jets. But the comfortable perch is increasingly becoming a hot seat, especially when CEOs and their employees cross red lines.

As this year’s CEO Success study shows, boards of directors, institutional investors, governments, and the media are holding chief executives to a far higher level of accountability for corporate fraud and ethical lapses than they did in the past. Over the last several years, CEOs have often garnered headlines for all the wrong reasons: for misleading regulators and investors; for cutting corners; and for failing to detect, correct, or prevent unethical or illegal conduct in their organization. Some high-profile cases, involving some of the world’s largest corporations, have featured oil companies bribing government officials and banks defrauding customers.

To be sure, the number of CEOs who are forced from office for ethical lapses remains quite small: There were only 18 such cases at the world’s 2,500 largest public companies in 2016. But firings for ethical lapses have been rising as a percentage of all CEO successions. (We define dismissals for ethical lapses as the removal of the CEO as the result of a scandal or improper conduct by the CEO or other employees; examples include fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions. See “Methodology,” below.) Globally, dismissals for ethical lapses rose from 3.9 percent of all successions in 2007–11 to 5.3 percent in 2012–16, a 36 percent increase. The increase was more dramatic in North America and Western Europe. In our sample of successions at the largest companies there (those in the top quartile by market capitalization globally), dismissals for ethical lapses rose from 4.6 percent of all successions in 2007–11 to 7.8 percent in 2012–16, a 68 percent increase.

Eliminate Your Authenticity Filters

Leading is learning. Not so much learning how to do the things we refer to as “leadership” — giving direction, managing accountabilities, and motivating others — but rather, learning who you are and how to bring the best of yourself to moments of influence with others.

Many of us feel at times as if we are impersonating a leader rather than working out what it means to be ourselves in a position of leadership. Instead of covering up those underdeveloped areas, great leaders learn how to operate as they truly are.

Take now-retired host of The Daily Show Jon Stewart. His story about the early years of his career offers a lighthearted but incisive description of what happens when you take a learner’s mind and experiment with the connection between who you are and what you aspire to do: “Sunday night through Thursday night it was me and drunk Dutch tourists in a basement in the Village…. I went on every night and I learned the difference between impersonating a comedian and being a comedian. And that was my break. [It] was learning how to be authentic. Not to the audience but to myself.”