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Smart Power (Winter 2017)

Rising income inequality, revelations of corporate greed, and the democratization of media have flipped the classic pyramid of influence, to a point where the general population now trusts its peers more than those in power. Trust is no longer granted automatically on the basis of hierarchy or title. In today’s world, trust must be earned. The remedy: smart power.

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Feature Articles From this Issue

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Youth Unemployment

  • Shareholder Activism: This Changes Everything!
    by David R. Beatty
    In the 1980s and 90s, funds that attacked publicly-traded companies were known as ‘corporate raiders’, and their attacks were brutish. Fearing reputational risk, most asset managers steared clear of such nasty attacks. Today, these funds are called ‘activists’, and they have gained respectability, as their campaigns are often based on an alternative view of corporate strategy—developed with significant investments of time, talent and money. As a result, fund managers are now willing to listen, and senior executives need to accept the reality of this ‘golden age of activism’, where trillions of dollars—yes, trillions—are being mobilized to improve the performance of publicly-traded companies. The author presents three new realities that every director and executive must embrace to thrive in the ‘new normal’.

  • Tackling Inequality: The Challenge for Corporate Leaders
    by Rich Lesser, Martin Reeves,and Johann Harnoss
    Few people would argue that we live in a time of growing inequality and uncertainty. Societies are being challenged in ways we have not seen for decades—with nationalistic rhetoric and agendas from the far right and a deep distrust of business, globalization and technology from the far left. Many worry that such a polarization of public opinion and policy making could introduce new risks that deter investment—which is already far too low, judging by current interest rates—and undermine future prosperity. The authors, from The Boston Consulting Group, present a ‘leadership agenda for shaping the future’, consisting of six principles.
Collaborative Innovation
  • Collaborative Innovation: How to Avoid the Four Traps
    by Alessandro Di Fiore, Jonas Vetter,and Devan R. Capur
    Most leaders recognize that in today’s innovation-obsessed economy,  they need to look beyond their own walls and collaborate externally with other organizations in their ecosystem to create new products and solutions. While the need for collaboration has been well-documented in the business-to-consumer (B2C) context, it is less so in the business-to-business (B2B) space. The authors show that, when done right, B2B collaborative innovation can generate benefits in four distinct areas, including decreased risk and increased trust. Based on their work with leading companies like BASF, Daimler and VentureMed, they describe the four ‘traps’ that collaborators face, and how to surmount them.
Managing Conflict
  • Managing Conflict Constructively
    by Karen Dillon
    Just because your workplace appears civil and quiet doesn’t mean it is devoid of conflict. Across industries, teams composed of high-performing individuals are naturally subject to tensions and rivalry. The author, a contributing editor at Harvard Business Review, provides evidence that most workplace disagreements stem from one of three sources: different agendas, different perceptions and different personal styles. She explains these sources in detail and provides tools for working through them.  
Impact Investing
  • Impact Investing: Tracking the Adoption of a Financial (and Social) Innovation
    by Roger Martin and Rod Lohin
    Increasingly, it is possible to generate financial returns alongside positive social and environmental impact. This is the promise of an emerging investment approach called ‘impact investing’ that is gaining the attention of pioneering investors: big institutions, foundations and high net-worth individuals are moving quickly into this new market. However, in order to succeed, the authors say, impact investing must grow beyond these pioneers and reach a broader set of investors. They show what needs to happen by walking through Everett M. Rogers’ five attributes of successful innovations: relative advantage over alternatives; compatibility with the values, experiences and needs of adopters; simplicity; trialability; and visibility. If impact investing can address its barriers-to-adoption, they conclude, it will be one of the breakthrough innovations of our time.
Expertise Liability
  • When Expertise Becomes a Liability
    by András Tilcsik and Juan Almandoz
    The most critical function of every executive team is to make decisions that benefit an organization in the long term. Most of us would imagine that the more domain experts there are in a particular group, the better: their collective knowledge of risks and opportunities in a particular industry will surely lead to effective long-term decision making. The authors show that this reasoning is flawed. They describe their research, which indicates that in certain circumstances, groups that are dominated by domain experts may exhibit three harmful tendencies that actually detract from effective decision making, including over-confidence and ‘cognitive entrenchment’.
Sustainable Future
  • Investing for a Sustainable Future
    by G. Unruh, D. Kiron, N. Kruschwitz, M. Reeves, H. Rubel, and A. Meyer zum Felde
    As evidence mounts that sustainability-related initiatives are key to a company’s success over time, a growing number of investors are now paying close attention to environmental, social and governance (‘ESG’) metrics. That according to the authors, whose 2016 Global Executive Study showed that for a decisive majority of investors —more than 70 per cent of those surveyed— sustainability has become central to their investment decisions. With wide ranging examples from GE to Volkswagen to Mitsubishi, they show how leading companies are rising to the challenge.
End of Accounting
  • The End of Accounting?
    by Baruch Lev and Partha Mohanram
    Renowned New York University Finance Professor Baruch Lev’s book, The End of Accounting, makes some very bold statements about the current state—and future—of financial reporting.  Rotman School of Management Professor Partha Mohanram responds to some of Lev’s more provocative statements, covering topics including: cash flow vs. earnings; the role of intangibles; accounting complexity; and the way forward.
Brain Game
  • Winning the Brain Game: Fixing the Seven Fatal Flaws of Thinking
    by Matthew E. May
    Every solution you come up with—no matter how perfect it first appears—carries with it assumptions, leaps of faith and implicit conditions for success. If these are not recognized and attended to, they can turn out to be the Achilles heel in your great idea. So says the former creative advisor to Toyota, in a wide-ranging interview about his latest book, Winning the Brain Game. He presents and describes what he calls ‘the seven fatal flaws of thinking’: leaping, fixation, over-thinking, satisficing, downgrading, not-invented-here and self-censoring.  Using a wide range of real-life examples—from Procter & Gamble to Xerox to Apple—he also shows how to avoid these common thinking flaws.
  • Introducing Catalytic Governance
    by Patricia Meredith, Steven Rosell and Ged Davis
    Thanks to the Internet, like-minded people can now organize with ease, and as a result, more groups and organizations are demanding a voice in issues of governance. The traditional, top-down model of governance—in which a few render judgments and the masses fall in line—is increasingly being rejected, and we are seeing an exertion of influence by people who feel excluded from traditional governance structures. Exhibits A and B: the Brexit vote and the unlikely triumph of Donald Trump. The authors describe a new approach to governance called ‘Catalytic Governance’. By following its five steps, leaders can better engage stakeholders, find common ground, build trust, and frame and re- frame issues—ending up with a common plan from which to take collaborative action.


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