The Best of the July-August Issue

 

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July 28, 2014 By Best of the Issue Column It's Time to Split HR Ram Charan Something radical needs to happen to the HR department, argues this longtime CEO advisor. CEOs need HR heads who can think of talent strategically. But most HR chiefs are tactical experts in personnel benefits, compensation, and labor relations. That's not an executive role, Charan argues. It's an administrative one, which should split off and report to the CFO. Then a new role should be created — HR head for leadership and talent — who would report to the CEO and focus on acquiring, developing, and channeling the talent the organization needs to fulfill its strategic goals. Rather than be seen as a specialist, this position would, like the CFO and COO, be a developmental step for high potentials aspiring to be CEO. Charan expects to get some flak for this idea. But he believes even the critics would agree that the way HR functions in most companies today just doesn't work. The Big Idea The Crisis in Retirement Planning Robert C. Merton One of the casualties of the dot-com crash was the defined-benefit pension plan. As the value of assets plummeted, firms found it harder to generate the income required to meet pension obligations. As a result, company after company shifted to defined-contribution plans, generally contributing some amount to employees' retirement accounts each quarter but making no promises about what income that might eventually generate. This shifted the risk from employer to employee. But that's not the problem, argues this Nobel Prize-winning economist. The real issue is that the funds are being judged — and regulated — according to the market value of the portfolio (that is, according to its worth if traded today), not its ability to generate future income. The safest instruments for generating future income are inflation-adjusted long-term annuities. But since their current market value fluctuates widely as interest rates rise or fall, these assets look risky to today's 401k managers. The solution is simple, Merton maintains: continue managing your 401k with a mixture of risky and risk-free assets, but measure the risk to your future income, not to the portfolio's current trading price. Equities would likely still be the choice for those seeking higher-risk growth, but annuities would take their proper place as the truly risk-free asset. Spotlight The Ultimate Marketing Machine Marc de Swaan Arons, Frank van den Driest, and Keith Weed This comprehensive study of effective brand management in the digital age comprises surveys of more than 10,000 marketers in 90 countries and in-depth interviews with some 350 CEOs, CMOs, and agency heads. And it finds a clear pattern in the way that the most successful brands are managed. Marketers of top brands, for instance, are using the flood of data everyone's collecting not just to identify what their customers are buying when and where (that's table stakes already), but also why. They're using their digital connections both to deeply personalize their offerings and to broaden their reach through frequent touch points. And they're delivering not only superior functional and emotional benefits but also meaningful societal benefits, which energize and inspire employees and customers alike. If that sounds like a lot of responsibility for one department, it is: "Marketing," the authors say, "has become too important to be left just to the marketers." Feature Sustainability in the Boardroom Lynn S. Paine Climate change, water pollution, corruption, and uneven access to wealth, health, and education: more and more companies are recognizing the importance of such CSR and sustainability issues to their long-term viability. And yet these matters get short shrift in most corporate boardrooms, consistently ranking behind some two dozen more-pressing priorities. This fact was brought home dramatically to Nike board member Jill Ker Conway when CEO Phil Knight suddenly turned the 1996 annual board meeting over to her as activists marched to the front of the hall to protest labor conditions in Asian contract factories. That experience prompted Conway to suggest, and Nike to create, a board-level corporate responsibility committee. Originally focused on unsafe labor practices, the committee steadily broadened its purview as Nike began to seek competitive advantage by developing more sustainable manufacturing operations. Read this detailed look at Nike's experience, and it becomes clear why Paine argues that many, if not most, companies would benefit from setting up a similar committee. And you can find out more about what happened at Nike's 1996 board meeting online in the full version of the interview Paine conducted with Conway.

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