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PERSPECTIVES

Four top executives talk about

what it takes to hold on to the
long-term view.
Who Owns the Long
Term?
Perspectives from Global Business Leaders
•

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 Four top executives talk about what it takes to hold on to the long-term
view.

PERSPECTIVES

Who Owns the Long

Term?
Perspectives from Global Business Leaders

For most chief executives, there is no end to Harvard Business School’s Europe Research
things that must be done today. Or tomorrow. Center, in Paris, interviewed four top execu-
Or by the end of the quarter. Those things are tives of global companies. The essays that
COPYRIGHT © 2007 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

obvious, they’re ever present, and they often form this article are based on the transcripts
yield fast results. What’s much more difficult of those interviews.
for many CEOs is determining what they need In the first essay, veteran CEO Maurice
to do in the long term. Many things on that list Lévy, who has over the past 20 years turned
are intangible, hard to quantify in the dollars the French advertising agency Publicis
and euros of global commerce, and easy to put Groupe into the fourth largest agency in the
off. But long-term issues left unattended have world, points out that a company’s long-term
a way of sneaking up on you very tangibly, future can be secured only by making the
right now, today, and the decisions you end up right decisions today. He is followed by Mike
making in haste leave you with problems that Eskew, chairman and CEO of United Parcel
linger for decades to come. Then there’s al- Service, a global provider of logistics and
ways the issue of trade-offs. CEOs have to fight package-delivery services, who emphasizes
fires; how can you ensure that this doesn’t con- the importance of staying true to your vision
sume all of your energy? And how can you be and values over the long haul, however diffi-
sure that your short-term measures don’t have cult that might be. In the third perspective,
unwanted long-term consequences? Wulf H. Bernotat, CEO of E.ON, one of Eu-
To help readers think through what it takes rope’s largest energy suppliers, offers a sober-
to manage for the long term, HBR Senior Edi- ing assessment of the challenges facing busi-
tors David Champion and Steven Prokesch, ness leaders and politicians as they look for
and Executive Director Vincent Dessain and ways to balance high energy needs against en-
Research Assistant Ane Damgaard Jensen of vironmental damage. Our final perspective

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 Who Owns the Long Term? •• •P ERSPECTIVES

comes from Marianne Barner, director of cor- chi in 2000, as they presented themselves. The
porate communications and the ombudsman temptation in these situations is to move as
for children’s issues at Swedish furniture re- quickly as possible. But that would have been
tailer IKEA, who offers more specific guidance just as bad as moving too late. Having a wide-
on how corporations can contribute to the im- spread network with common clients is a result
provement of the environment and society in of moving at the right time. Managing such a
general. global group of ad agencies would have crip-
None of these perspectives offers a com- pled us financially had it not been for the glue
plete overview of what it means to manage of the common clients.
for the long term—there is simply too much Creative businesses like ours have a natural
territory for that. Instead, each focuses on tendency to latch onto new ideas, and mov-
just one part of it. Nor do the perspectives ing forward prematurely is an ever-present
offer definitive answers; rather, they provide a danger. In the mid- to late 1990s, there was a
general sense of the terrain and its challenges, lot of buzz about the Internet; most people
and the kinds of decisions and trade-offs you thought that it would quickly become the
will face while striving to secure your com- dominant medium of communication. Over
pany’s long-term future. the long term, that’s probably what will hap-
pen, but at the time, we believed that it
Look to Your Front Line would be hard to change people’s consump-
for the Future tion and information-gathering habits and,
so, we refrained from investing heavily in
by Maurice Lévy Internet-advertising capabilities. For a while
Maurice Lévy is the chairman and CEO of Publicis there, it looked as though we had missed
The executive committee Groupe, the world’s fourth largest advertising group, some good opportunities, but after the bub-
based in Paris. ble burst, we ended up looking clever.
is not always the best How do we decide exactly which moves to
Building the future is really about building the make? We hold strong views and enjoy a lively
place to smell the future, present. Yes, you must be able to see where debate. I was always arguing with my predeces-
and we should accept you want to go, but you will never get there if sor and mentor, Marcel Bleustein-Blanchet,
you spend too much time only looking toward the founder of Publicis. Those exchanges could
that. it. Instead, the decisions you make and the get quite heated; I would often stalk back to
people you work with today are what will get my office, slam the door, and refuse to speak to
you to where you need to be—never lose him for two or three days. Most of the ideas
touch with them. And to build the present, a discussed at Publicis Groupe in Paris originate
business leader must be careful to stay close to from the agencies in the field. The executive
the front line—the people who deal with your committee is not always the best place to smell
customers and markets. the future, and we should accept that. Our job
That’s particularly true in a service business is to listen and to interpret what we hear from
like ours, where, in a sense, others map out people working and talking in the field. All of
your long-term future. Today, four global our subsidiary businesses have regional com-
groups, of which we are one, dominate the ad- mittees, and they share information and try to
vertising industry. That’s a direct consequence see how to transfer ideas across cultures: Will
of our clients’ decision to develop global busi- this beer campaign in Brazil work in South Af-
nesses. If Publicis had not gone global as well, rica, or will that French soap campaign succeed
we couldn’t have given clients the global ser- in Russia? As this work percolates, we can start
vice they now demand—and we wouldn’t be to pick out broader, global patterns, keeping
here today. ourselves ahead of the curve, but not too far
The trick, as in everything, was in knowing ahead.
when to make our moves. Given that we had I think the fact that we are led less by the
no control over our clients’ pace of globaliza- central office and systems than are our Ameri-
tion—let alone our competitors’ plans—we can counterparts also has contributed to our
couldn’t go global according to a fixed sched- success. We learned this the hard way, follow-
ule. We had to seize good acquisition opportu- ing our purchase of Farner, a Swiss network
nities, such as our purchase of Saatchi & Saat- that is based mainly in German-speaking coun-

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 Who Owns the Long Term? •• •P ERSPECTIVES

tries. At the time we bought the company in of globalization, just-in-time outsourcing,

1973, we were the number four advertising rapid technological change, and empowered
agency in Germany. By 1979, we had lost every consumers. You cannot simply create solutions
piece of business that Farner had handled. for your customers week by week. You have to
Why? Those of us in Paris had thought that prepare for what they will need in five or ten
being one of Europe’s top creative agencies, as years from now, too, and that takes research,
well as the new owners, we had the right to tell effort, and scenario planning.
Farner’s people how to manage the details of You also must have the mettle to stick with
their business. Predictably, the Farner people your vision. United Parcel Service’s expan-
left and took their clients—who were perfectly sion beyond North America is a case in point.
happy with their work—with them. In the mid-1970s, we saw the world was slowly
Two other pieces of advice. First, for service growing more interconnected and interde-
companies to survive over the long term, man- pendent and concluded that we had to get a
agers must be willing to turn down business foothold in the international marketplace. To-
that they don’t understand. Early in my tenure day, our fastest-growing and most profitable
as CEO, one of my managers asked me to look business is international small packages. But
over a potentially lucrative piece of business in it took more than 20 years for those interna-
the financial sector: He didn’t fully understand tional operations to produce consistent prof-
what the client was trying to sell. When I had its, partly because of our heavy investments
the client come in to talk to me about it, the in the expansion during that period. Another
description wasn’t reassuring. I concluded that reason, frankly, was the need to experiment
we could not accept the business, and the cli- and learn from our mistakes. I know because I
ent went elsewhere. Two years later the com- was on the team in 1976 that started our oper-
Our fastest-growing and pany collapsed and the client was in jail—and ation in Germany, which was our first outside
the agency that had taken on the account also North America. We rushed in with a kick-the-
most profitable business folded. door-in strategy that depended on a U.S.-centric
Second, companies that survive have leaders platform and then learned the hard way that
today, international who know when to step aside. I’ve been CEO we couldn’t impose expatriate managers and
small packages, took for about 20 years, and in that time we’ve U.S. procedures on a foreign operation—that
changed the company completely. It’s been a we needed to adapt our way of doing things
more than 20 years to great experience and, I think, a great achieve- to the local culture and practices. But we did
produce consistent ment. But I’m also aware that being the right learn. Rather than abandon our vision in the
man for the past 20 years doesn’t necessarily face of losses, we persisted. We applied those
profits. make me the right man for the next 20 years— same lessons when we started expanding
or even the best person to decide who is the around the world in the early 1980s.
right person for the future. That’s why I plan to It’s true that we were a private company
stand back from the decision concerning my then—UPS went public in 1999. But being a
successor, who will take over in 2010. I’ll public company has not fundamentally
present two or three candidates to the board changed our willingness or our ability to invest
and, with the board’s agreement, give them for the long term. We have found that by com-
opportunities to demonstrate their capabili- municating and executing our long-term strat-
ties. The candidates and their visions of the fu- egy effectively, we can attract investors who
ture will be very different from one another, will stick with us for the long haul.
giving the board a real choice. Over the past five years, we have invested
$26 billion in capital expenditures, acquisi-
Stick with Your Vision tions, dividends, and share repurchases—all to
enhance the long-term value for share owners.
by Mike Eskew Today, we are well on our way to transforming
Mike Eskew is the chairman and CEO of United Parcel UPS from a company that satisfies customers’
Service, a global provider of logistics and delivery services small-package-delivery needs to one that en-
headquartered in Atlanta. ables global commerce by providing logistics
and distribution solutions to customers rang-
Companies that become slaves to the short ing from individuals to multinational corpora-
term are the ones most likely to fail in this age tions. The unmatched global infrastructure

harvard business review • managing for the long term • july–august 2007 page 3
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 Who Owns the Long Term? •• •P ERSPECTIVES

that those investments created gives UPS a dis- low single digits, and provided us with a cadre
tinct competitive advantage. Our high-tech, in- of superb frontline managers. The loyalty and
tegrated network allows us to offer industry- expertise of our employees in general and our
leading products—like our Delivery Intercept frontline managers in particular allow us to
service to stop and reroute packages already in adapt on a daily basis to most situations and to
our system—and new tracking and alerting sys- consistently excel in serving customers.
tems to deal more easily with cross-border There are plenty of managers who profess a
moves through customs. Our infrastructure belief in serving customers, innovating, em-
and business model have produced consistent powering employees, and making all employ-
and superior returns. ees feel like owners. These are more than
That said, a long-term vision and strategy words for us: They represent our way of life.
cannot be an excuse for compromising on how We sincerely believe these attitudes and ap-
you serve customers in the here and now. You proaches are good for business. They’re why
also must execute well every day. This takes UPS, which turns 100 in August, is still grow-
ambidextrous leadership. It involves making ing.
sure all of our 427,700 employees understand
where we’re going and what each needs to do Take Responsibility for
today and tomorrow to get us there. That, of Climate Change
course, is one of those things that sounds easy
but is a huge challenge. It requires relentless by Wulf H. Bernotat
communication, which is a big part of my job. Wulf H. Bernotat is the CEO of E.ON, one of Europe’s larg-
Perhaps more important, it requires a culture est energy companies, based in Düsseldorf, Germany.
based on an authentic respect for employees
and customers. We have such a culture. It’s one We all know the main contributors to carbon
of our greatest competitive advantages, and I dioxide emissions: Europe, the United States,
consider the job of nurturing that culture one China, India, and Russia. The sheer size of
of my key responsibilities. these economies—and the expected growth
Three pillars of our culture are training, em- rates in the developing ones—makes avoiding
ployee stock ownership, and promotion from an increase in global CO2 emissions unlikely in
within. We’re famous for the extreme care we the short term. That’s why we need to manage
take in designing job processes and measuring that increase carefully.
performance (if it moves, we measure it). But Those of us in the energy industry can do a
this approach works only if people know how lot about it, and we’re already making
to do their jobs, which is why we spend more progress. E.ON is working on a design for a gas-
than $400 million every year on training. Our fired power station that will convert 60% of
highly trained workforce is a crucial element of the gas consumed into energy. A couple of coal
our business model, which helps explain why projects hope to reach efficiency rates of 46%,
we want people to spend their careers at UPS. and other projects that aim for efficiency rates
We encourage them to stay by promoting from approaching 50% are already under way. By
within whenever possible. (Ten of the 12 mem- achieving those kinds of numbers in countries
bers of our Management Committee began like Russia or China, where power stations
their UPS careers in entry-level positions.) En- have efficiency rates of 35% or less, we could
couraging employees to own UPS stock is a reduce CO2 growth rates significantly and im-
philosophy that dates back to 1927, when our mediately. E.ON is also investing €8 billion in
founder, Jim Casey, instituted a policy that sustainable and new energy technology be-
UPS should be “owned by its managers and tween now and 2012. We’re researching and
managed by its owners.” Today, all of our U.S. developing clean coal technology that could
employees—including hourly workers—and create a new generation of power stations
many of our international employees can pur- worldwide. And we’re planning to build more
chase stock at a discounted price, and at least large-scale offshore wind farms in the UK and
half of every manager’s bonus is paid in UPS Germany.
shares. As for consumption, we have to start educat-
These policies have empowered employees, ing people that energy is a scarce resource to
produced a management turnover rate in the be used as efficiently as possible. When I walk

harvard business review • managing for the long term • july–august 2007 page 4
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 Who Owns the Long Term? •• •P ERSPECTIVES

into a hotel room in the United States, for ex- the least. In the short term, Americans must
ample, I always find all the lights switched on. think seriously about their state-based infra-
Worse, there’s no main switch, requiring you to structure and regulatory framework, which
turn off each light individually when you breed inefficiencies. Considering that Califor-
leave. As an energy provider, we have to be at nia’s consumer-led price regulation forced
the forefront of that education. E.ON has al- utilities to skimp on investing in new plants
ready invested a great deal of time showing and infrastructure, however, I’m not optimis-
our customers—individual home owners and tic about the country’s ability to assure a reli-
large corporations alike—how to cut down on able energy supply, let alone an environmen-
unnecessary energy consumption. We also tally friendly one.
teach communities and schoolchildren about Europe isn’t doing much better. It seems to
responsible energy use and conservation. me that, realistically, only five or six of the 27
We must be realistic, though, about how EU members even take the issue seriously—
much businesses can do. There is plenty of talk and those five or six don’t seem all that com-
in the press about switching to a renewable mitted. Moreover, the German government,
and clean energy source like wind or solar or which provides about €400 million for the de-
geothermal power. But it will take a long time velopment of renewable energy technology,
and many billions of euros before such alterna- should ask whether that is really enough for
tives can serve as the mainstay of a power grid. such a rich country.
With coal, you can rely on your power stations One of Europe’s greatest problems is the lack
at all times, and you can switch gas on and off of consensus about what kind of energy indus-
to manage fluctuations in demand. But due to try we want and how to achieve it while bal-
the poor design and planning regime for en- ancing Europe-wide and country-specific cli-
We have to start ergy in general, currently Germany must run mate change targets. For example, for about 20
power stations in parallel with wind farms to years now, governments have tried to break up
educating people that make up for sudden changes in our generation the big utilities to bring about price reductions
of wind power. There’s nuclear energy, of through competition. Then when Russia
energy is a scarce course, which is emission free and reliable. But turned off the gas pipeline to Ukraine in 2006
resource to be used as nuclear is not a total solution because not all for a couple of days, security of supply topped
countries that are capable of managing a nu- the political bill. People started worrying
efficiently as possible. clear program, including Germany, want to in- about dependence on Russia for supplies. All
vest in it. The truth is, if the German people of a sudden, encouraging the development of
don’t start switching off lights and living in an large energy suppliers like E.ON, which can ne-
environmentally responsible way, we will be gotiate on more equal terms with the likes of
forced to use such sources. What is clear is that Gazprom, Russia’s giant gas supplier, seemed
a diverse and reliable mix of energy genera- sensible. And all the talk about climate change
tion—from solar power to nuclear power—is militates against fragmentation as well: How
the only way to ensure a secure supply while can small suppliers mobilize the large-scale in-
protecting our environment. vestments needed to deal with climate
That said, finding a long-term solution is also change?
a political challenge, not only a business one, The 2005 creation of the Emissions Trading
and the developed world has to take the lead. System is Europe’s greatest achievement in
Countries like China, India, and Russia argue this area. Granted, ETS got off to a rocky start
that their per capita emission levels are much because trading liquidity has been slow to
lower than Europe’s or the United States’. They build. But if the U.S. experiment with sulfur
are also already doing a lot—for example, dioxide emissions trading is any indication,
China sets higher standards for car emissions the market will pick up as financial institu-
than the United States does. What’s more, such tions assume a larger role. The real benefit of
countries believe—justifiably in my view—that this market is that it puts a price on carbon
they are entitled to achieve the same level of emissions. By tightening the link between en-
prosperity that the United States and Europe vironmental concern and business perfor-
have achieved. mance, the market will make it easier for
When it comes to reducing emissions, the companies like E.ON to borrow against future
United States can afford the most and does savings in carbon emissions to finance current

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 Who Owns the Long Term? •• •P ERSPECTIVES

investments in less carbon-intensive power changing the lives of 80,000 children in, say,
stations. More fundamentally, putting a price Uttar Pradesh is still a big accomplishment. To
on carbon will give managers dollar or euro help us in these tasks, we’ve partnered with
numbers for their environmental objectives NGOs such as Save the Children and UNICEF
that are as solid as any of the other variables to as well as the WWF. We’re also in touch with
which they manage. Above all, we need a sta- Greenpeace.
ble, long-term regulatory framework (and tar- Save the Children in particular helped us
gets) to allow companies like E.ON to invest in formulate our strategy on preventing child la-
technology and infrastructure that will help bor. It pointed out to us that all actions should
protect our environment and ensure a reliable be in the best interests of the child. That prin-
energy supply today and tomorrow. ciple helps us to determine what to do when
we find an individual child employed at a sup-
Be a Socially Responsible plier and, more broadly, what we can do in the
Corporation community. A child working in a factory may
serve the short-term interests of the child’s
by Marianne Barner family but not the child’s own interests. And
Marianne Barner is the director of corporate communi- offered a choice, most parents would not send
cations and the ombudsman for children’s issues at IKEA, their children to work.
a global home furniture retailer founded in Sweden. Our partnerships with NGOs are a relatively
small part of how we are making ourselves a
Corporate social responsibility is part of our socially responsible company. More important
daily business. IKEA has set a sustainability ob- is what we do in development and design,
jective requiring that all our activities have an where keeping prices low and meeting our
overall positive impact on people and the en- CSR goals requires some clever thinking. We
Our mission is to create a vironment. We have a list of key performance also have to exercise control over our suppliers,
better everyday life for indicators to measure our progress on CSR is- to ensure that they are adhering to our prod-
sues, such as the environment. Of course, it’s uct specifications and codes of conduct. This
the people we aim to not easy to link our CSR performance directly sounds a little like policing and, inevitably,
serve, which has made it to financial performance, but we believe that there’s an element of that, but increasingly
our efforts have a positive impact on the num- they’re willing and able to own the compliance
easy for us to incorporate bers. Since we’re not a public company, I feel themselves. Obviously, it helps when you are a
that the link between financials and CSR large and long-term customer, and that’s one
social and progress is less of an issue for us. reason why we’ve been consolidating our busi-
environmental goals into Our mission is to create a better everyday ness, bringing the number of our suppliers
life for the many—the people we aim to down from 2,500 to 1,300 or so over the past
our strategic planning. serve—which has made it easy for us to incor- few years.
porate social and environmental goals into our Going forward, we will reflect the growing
strategic planning. It means that we have to re- concern in the developed world about climate
flect what our customers and other stakehold- change. Climate change has become a dinner-
ers value. In the 1980s, in the wake of a scare in table conversation topic everywhere. There’s a
Denmark about the harmful effects of formal- lot to do in this area. We are building roughly
dehydes used in manufacturing furniture, we 20 new stores a year and our design deci-
started paying close attention to the materials sions—such as the lightbulbs we use—can
and processes our suppliers used in the manu- make a difference to our CO2 emissions. Down
facture of the goods we sell. Child labor, which the line, we’re looking at alternative transpor-
is a major concern of ours, surfaced at the be- tation for our delivery services—IKEA Switzer-
ginning of the 1990s, following the 1989 Con- land, for example, is considering the use of
vention on the Rights of the Child. We also electric cars for home delivery. And in building
focus heavily on sustainable forestry, as you new stores, we’re looking at locations with
would expect from a furniture supplier that transportation options other than using a car.
uses a lot of wood. Our goal is to become 100% reliant on renew-
Geographically, IKEA focuses on where it able energy for our energy needs and to cut
can make a difference. We obviously can’t save overall energy consumption by 25%.
250 million children from exploitation, but So far, our biggest problem in embedding

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 Who Owns the Long Term? •• •P ERSPECTIVES

CSR has been communicating to our people sponsibility. My advice to managers is that be-
what we’re doing. Like most large retailers, we coming a socially responsible corporation takes
have a high staff turnover in the stores. And longer than you think and involves not a giant
the plight of children can seem remote. But leap but thousands of small steps.
when it comes to climate change, I think every-
one will get engaged. It hits us all so directly. Reprint R0707C
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