The New Era of Corporate Transparency: An Interview with G100 Network CEO Scott Miller

For this audio interview, Tom Gardner sat down with Scott Miller, CEO of the G100 Network, a group of more than 200 leading CEOs who meet to discuss best practices in the new era of corporate transparency. The former CEO of both Hyatt Hotels (NYSE: H  ) and United Infrastructure, Miller served on the board of AXA Financial, as well as several private companies, and is a special advisor to General Atlantic Partners. Miller is also a member of the boards of the Aspen Community Foundation and The Kravis Leadership Institute.

A full transcript follows the video.

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Transcript

TOM GARDNER:

Hi. Tom Gardner here at Motley Fool New York City headquarters with Scott Miller, who is one of the founders of the G100 that we'll be discussing a little bit in the beginning. He was also formerly the CEO at Hyatt Hotels. He's an advisor at General Atlantic. He'll correct all of my mistakes.

SCOTT MILLER:

Yes, perfect ...

TOM GARDNER:

I got to attend a G100 event with a variety of CEOs — John Mackey and Jack Welch debating, which was a great evening — and that's how I connected with him. But Scott, why don't you just start by telling us a little bit about G100? The inception of it and what ...

SCOTT MILLER:

Perfect. G100 actually was born out of the change in environment post-Enron and WorldCom. Frankly, its earliest convenings were conversations around what's best practice and governance. And frankly, at that point ... I was just about to say Dodd-Frank, which is on everybody's mind ...

SCOTT MILLER:

But, no. Sarbanes-Oxley was just coming into everybody's mind. The big accounting firms, which I think were six at that point ... as opposed to four now ... and the big law firms ... Frankly, no one really understood what the implementation of Sarbanes-Oxley was going to entail, what it meant. The notion that CEOs, CFOs all of a sudden had to sign financial attestations and somebody might actually take me to jail if this is wrong.

All of that was really concerning and I think boards, in particular, along with CEOs were trying to figure out what's best practice and what gets me clearly on the right side of the bright yellow line, because we are running our businesses with total integrity. We're doing everything we can to do things right and we want to make certain the world understands that and that we're in compliance with this new legislation.

As those meetings took place, there was a natural evolution to make a couple of observations. The first was businesses across industry have more in common than is dissimilar. So, we have a tendency, if we run a business in a particular industry, to know our direct competitors and maybe know them very well because we're trying to determine how it is they compete with us, how do they go to market, what's their value proposition and the like vis-à-vis our own. But I think often we don't go across the street and ask somebody who's in an unrelated industry, "Hey, I have this issue. How do you think about it?"

If you think about companies, they all have revenue issues of some sort or another. Everybody's got margin compression issues. Everybody's got channel distribution/disintermediation issues relating to all of the technology advances. Everybody's got a global talent issue of some sort. Everybody's got an increasing regulatory issue of some sort.

And there's a lot that companies can learn from one another about how to deal with those issues because certain industries are further along in their evolution of thought about how to deal with regulation. Take the big pharma companies. They live with it every day, right? They can't do anything without FDA approval — on almost a daily basis — so they can teach us a lot about other companies. About how to deal with increasing regulation.

I think that applies in a whole bunch of categories. That was observation number one that started me thinking about the fact that CEOs might like to have a forum to make exchange around the idea of ideas — best practices for running business — and share common experiences. Talk about the challenges, particularly as the job of the CEO became more and more isolated.

TOM GARDNER:

How many organizations or G100 members — and how are they connecting and getting best practices?

SCOTT MILLER:

We've got about 125-130 members. We host two meetings a year where we bring everybody together. We get attendance that's roughly 80%-85% of our membership, so very good attendance when you think only the CEO of a particular organization can come. We host those meetings around agendas that are tailored to what in our minds — and the minds of our advisors, and I'll come back to this in a second — should be on the agenda of the CEO.

In the best world, we're helping CEOs look around the corner and anticipate what are the next areas of consideration for them. So, 15, 18, 24 months ago, we were talking about the big wave of big data and how were people going to effectively be utilizing all of this data that's being collected across all kinds of different forums. We want to cause CEOs to think about cybersecurity well in advance of their having a breach such as we've seen recently at Target and some of the other large retailers.

TOM GARDNER:

I don't know if you — obviously having been a CEO yourself in probably more than just your Hyatt experience. What are some of the qualities that you look for in a great CEO? We are sitting here talking to individual investors who probably spend more time thinking about people and culture than the average investor out there. So, we're a longer-term oriented approach and we look at who's running the company, what sort of talent are they surrounding themselves with, what's the retention rate of all of the employees at that organization? What are some things that you look for?

SCOTT MILLER:

I think those are big cues. My own sense is you want people who are lifelong learners. Who don't come to the job day one with a complete set of ideas ...

TOM GARDNER:

They've got the toolkit mind-set and they don't think they need anything else ...

SCOTT MILLER:

Yes, exactly. Around what's required to meet the challenges of the business. That they're willing to accept input from the people that surround them. That, in fact, they would like hire people that are smarter, better, faster than they are in the jobs that are most critical to the company. That they exert a certain humility. That they have a very clear understanding of the mission values and strategy of the company and they can articulate that and then, in fact, get the people that work for them to articulate it and percolate it down.

And that they're consistent. I think one of the places that many CEOs fall down is they start an initiative, they get distracted by another initiative and then they start a third initiative and the company loses sight of what is the real priority for us. The best CEOs are very crisp in thinking about there are three or four initiatives that we can manage at any given time. This is the prioritization of them and we're going to take these on until we've achieved them and then we're going to formerly take them off the board and replace them with three or four more.

TOM GARDNER:

Do you think that's changing now? That the demands on a leader are substantially different than they were five years ...

SCOTT MILLER:

Oh, absolutely ...

TOM GARDNER:

... ten years ago?

SCOTT MILLER:

Absolutely — for no other reason than technology's changing it — so basically every constituent can get to your desk as a CEO now. You've got an email address and every shareholder, every employee, every customer, your vendor, your entire supply chain ... Frankly, now, I think the virtuous circle includes all of the communities that you do business in. All of those people are your constituents. They all have access to you and they're all looking for consistent answers as to who you are as a company, what you stand for and where it is that you're trying to move the business.

TOM GARDNER:

So, the age of communications and transparency is on us, and basically you're highlighting the importance of repeating the important principles over and over ...

SCOTT MILLER:

Right. Exactly ...

TOM GARDNER:

... of your position across your whole stakeholder base.

SCOTT MILLER:

Exactly. I think it was A.G. Lafley who said, "I think some people need to hear things seven times before they actually fully understand it," and I think it is with that mind-numbing kind of consistency you need to drive the principles of the business to be certain that the entire organization is embracing it.

TOM GARDNER:

Maybe that gives me another little insight into why I love founder-CEOs in public companies as an investor ...

SCOTT MILLER:

Exactly ...

TOM GARDNER:

... because I guess, among other things, they've had a lot of practice from inception in finding what their values are and emphasizing those values.

SCOTT MILLER:

Exactly. Oftentimes, they reflect who they are as individuals and they become very clear compasses for the company. And they're very clear about the markets they will and they won't serve — that ruthless prioritization where you're not only looking to include opportunity, but you're actively also excluding certain opportunities and saying, "No. We don't have the bandwidth to handle this. We're focused here."

TOM GARDNER:

I can't remember the exact line, but Steve Jobs ... "We are defined by what we've said no to at Apple (NASDAQ: AAPL  ) , not what you see in front of you."

SCOTT MILLER:

Exactly. Exactly. What do they have? Fifteen to twenty SKUs?

TOM GARDNER:

It's unbelievable. There's a creation of hundreds of billions of dollars in market capitalization on less than two dozen SKUs.

SCOTT MILLER:

Exactly, yes.

TOM GARDNER:

Let's talk a little bit about your time at Hyatt ...

SCOTT MILLER:

Sure.

TOM GARDNER:

You came in, maybe, in the late 1990s ...

SCOTT MILLER:

Yes ...

TOM GARDNER:

... to Hyatt and you were on the [crosstalk 00:10:52]

SCOTT MILLER:

Exactly. So, in fairness to the Pritzker family, I need to be clear about the fact that I really was president of the company and Tom Pritzker was definitely the CEO ... although he wasn't investing his time in the company on an hour-to-hour basis the way I was ...

TOM GARDNER:

Yes ...

SCOTT MILLER:

The way he described my job to me was ... He said, "Scott, you can do anything here except sell the business."

TOM GARDNER:

Okay. Talk about a CEO attitude.

SCOTT MILLER:

And it was wholly owned by the family at that point in time.

TOM GARDNER:

And so, maybe just a little bit about ... We have a lot of real estate interests in our member base ...

SCOTT MILLER:

Yes, exactly ...

TOM GARDNER:

... and I view myself as largely ignorant about it, particularly commercial real estate. So, just a little bit of the mind-set of property acquisition for a hotel chain. What are some of the key factors? What's a sign that Hyatt's doing things right today or that other hotels ...

SCOTT MILLER:

The evolution of the hotel market has been really fascinating to watch and the public markets have now really separated out the hotel companies into different categories. Hyatt, today, is a bit of an anomalous company as a public company because roughly 20-25% of its real estate interests are actually owned by the company.

In the case of Marriott today, they've stripped out all of the real estate. They put it, at least initially, into a company called Host Marriott, which was a separate, publicly traded REIT. When Barry Sternlicht rolled up Starwood, at the core of it was an old-school paired-share REIT. I think there were only three or four in the world. It gave him, actually, very particular advantages in terms of the way they accounted for some of the income. But over time, they've de-emphasized their real estate ownership. Hilton just came public. They've got a certain amount of real estate baked into their balance sheet. It will be interesting to see how they manage it.

I think today hotel companies are focused on using their balance sheet to create advantageous opportunities for new hotels or maybe episodically to buy existing hotels where, if they didn't do that, they weren't going to get the management contract. But I think the use of capital is largely focused around obtaining management contacts and then recycling that capital to, again, continue the growth and the core growth is as managers.

TOM GARDNER:

So a hotel company ... Thank you. This is enlightening for me. A hotel company's — of that size and scale — primary reason to buy a location is to gain the management contract and maybe shed that real estate at some point.

SCOTT MILLER:

I think over time. I think that's a trend. I don't know so that's an absolute rule.

TOM GARDNER:

Okay, yes.

SCOTT MILLER:

There's some assets that you would never be able to replicate, so you may choose to keep them on your balance sheet for an extended period of time. At one point, Hilton owned the Waldorf Astoria. I don't know whether that's true today, but that's obviously one of those iconic pieces of real estate that you couldn't replace so you're very unlikely, probably, to sell. But I think by and large, capital deployed within the company to real estate is about growing the management contract.

TOM GARDNER:

And what do you think of commercial real estate now? I don't know how much or how little you're involved in it. Because the defining part of your work, at one point [crosstalk 00:14:53] infrastructure ...

SCOTT MILLER:

Exactly. So, I'm not as close to it today as I certainly was. But if you look at any list of the Forbes 400 or any other kind of list of large-family wealth accumulation, the vast majority of it has come out of long-term holding and the compounding of real estate values. Real estate still is a wholly unique asset. It obviously goes through pretty dramatic boom-bust cycles. It attracts capital at certain points in the economic cycle and seems to repel capital at other points, but it's still a key to long-term wealth creation.

TOM GARDNER:

Out of curiosity, why did you make that shift in your career out of that?

SCOTT MILLER:

Things are circumstantial. We started the John Buck Company — John, myself and a couple of other guys. I was a young kid without any money. It seemed really exciting and at that time it was the Wild West. You could borrow probably in excess of the total project cost of a big office building — so as a consequence you could actually create your own income. It was really exciting.

As time went on, I think I began to realize that real estate was — as I was making statements before about the G100 — was not so different than many other businesses and frankly the whole real estate capitalization of the late '70s, early '80s looks exactly like a leveraged buyout model today. You were taking either existing or projected revenue and you were discounting it against the capital model. You were hoping to raise as much debt as you could and put as little equity to work in a non-recourse basis as is possible — and then you crossed your fingers and hoped it all worked.

And then when it did work, you were able to very tax-efficiently refinance it over and over and over again if you chose to. And for those people who have been long-term holders of it, it's had this incredible compounding effect. And it's still very tax efficient to own from a multi-generational perspective.

TOM GARDNER:

You have been involved in the creation of a lot of things. John Buck. One of the early creators or early participants in Orbitz. Now you're working as an advisor for General Atlantic. Obviously, I'm not saying you're an early stage creator of that, but you're participating in studying and investing in relatively, somewhat earlier-stage companies ...

SCOTT MILLER:

Yes ...

TOM GARDNER:

... although they're $50 million-plus investments.

SCOTT MILLER:

So, I would say two things about myself. One, I'm proudly ADD. So, my own focus ... I need variety to keep myself ... I'm best focused when I'm multitasking — and that seems counterintuitive or actually moronic — but I think it's actually true. And then I am really most drawn to things in their early stages — in their formative stages — and probably less interested in them as they arc and get to a place where ...

TOM GARDNER:

They're beyond that ...

SCOTT MILLER:

Yes, where performance is now about that long-term discipline of prioritizing every day and refining and refining and refining. I'm more interested, probably naturally, in the early stage. Thinking about it in the biggest picture than how do we take that and narrow that big-picture opportunity down to something that we can actually move the needle against today and begin to crawl and then walk. And in the running phases, maybe a little less interested.

TOM GARDNER:

What would be one or two big-picture zones that you find interesting now? Maybe you've already made an investment or maybe General Atlantic has or maybe you're now looking at it thinking ...

SCOTT MILLER:

G100 and the businesses that we're creating are all, in some form or format, around human capital. And so, I am a huge believer that human capital is the only sustainable differentiator for any business. That a service offering, a widget, your product ... whatever it is that you're bringing to market ... somebody's going to clone it and do it cheaper, faster, better.

And so the choice you have is maybe that's you if your company has the right sort of DNA/people and you've given them permission to continue to evolve your business model. And if it's not you doing the cloning, then hopefully you have a culture that allows you to be a fast follower.

I think of a company like American Express today, which I think has a couple of thousand people employed in something they call ... I have to think for a moment. What do they ... They have actually a group whose job it is to think about how do you defeat American Express, the mother ship?

And it causes them to get out ahead of the market and go look at technologies that are leading-edge kind of payment systems that may or may not be complementary to what they're doing on their card business on a day-in-and-day-out basis today. But it's very forward thinking and it's why they've been a 160-year-old business when many businesses that were as robust as American Express was at one time in its history are gone well before getting to be 160 years old.

TOM GARDNER:

What are some of the indications of investment you're thinking of making or of a company that you've run across that they understand the importance of human talent?

SCOTT MILLER:

I think they just ...

TOM GARDNER:

You feel the vibe ...

SCOTT MILLER:

You feel it. You can go into those businesses and you can feel where they're celebrating the people that work there and are really recognized, even if they're making a widget that has allowed them to dramatically leverage their market presence because of the propriety of its positioning in the market for a moment in time. They still recognize that their key asset is their people. And I think that's one of the beauties of first-generation, founder-operated businesses. They recognize that partners really help them make all of this stuff go. And it's something that's hard to maintain over an extended period of time.

TOM GARDNER:

Let's talk succession ...

SCOTT MILLER:

Yes ...

TOM GARDNER:

That's one component of trying to maintain ... A company that I love from a human talent perspective is Facebook (NASDAQ: FB  ) . I think they have a really remarkable culture ...

SCOTT MILLER:

Right ...

TOM GARDNER:

... and they're doing — obviously Google, as well — are doing some really amazing things in, for example, allowing you to write your own job description ...

SCOTT MILLER:

Right ...

TOM GARDNER:

Pick who you're going to report to and what project you're going to work on ...

SCOTT MILLER:

Right ...

TOM GARDNER:

... and submit for a budget that for a 23-year-old may be much larger than they ever expected to be managing ...

SCOTT MILLER:

Right ...

TOM GARDNER:

... to basically create entrepreneurs inside of their company.

SCOTT MILLER:

Exactly.

TOM GARDNER:

But let's say that Larry Page passes the reins or Mark Zuckerberg ... Thankfully he's 29, so I particularly love the young founder who's demonstrated excellence. But when that Michael Dell moment comes and he leaves ...

SCOTT MILLER:

Right ...

TOM GARDNER:

... which he's come back now and runs his company. Or Howard Schultz leaves. Or Lew Frankfort is now leaving Coach (NYSE: COH  ) , although he's remaining as chairman, but he's been an unbelievable CEO ...

SCOTT MILLER:

Right ...

TOM GARDNER:

What are steps to take for anyone who's ...?

SCOTT MILLER:

We have a business. I'm partners with a guy by the name of Stephen Miles. It's called The Miles Group. It's part of our G100. And we've worked on probably eight out of the ten largest CEO transitions that have taken place in the marketplace in the last eighteen months. I think the first step is to make certain that you are focused on what needs to happen in the company in the succeeding year, two years, three years, four years, five years.

And then go through a very deliberate process of getting the board aligned to that. Making certain that everybody's in agreement with these are the jobs to be done as we go forward. It's not necessarily a mirror image of what we we've been looking at, but we're actually taking an assessment of the market as it is today and who's best to achieve the tasks that are demanded of the current state of the market.

And then — and only then — begin to consider the candidates, whether they be internal or external, and clearly there's an increasing bias to being certain that businesses have grown their own internal candidates.

TOM GARDNER:

Is that smart?

SCOTT MILLER:

I think it's absolutely smart. A, it's far more cost effective. It's far more likely to succeed, because the people know the culture. They're there. They understand who does what. How things work. They can communicate in the formal sense of the company and they can communicate in the informal sense that I think of as the "coconut wireless." Every business has two lines of communication.

And yet, there are circumstances where businesses have come up against big market shifts or other dislocations where I think it's essential that they bring somebody in from the outside who can cause the kind of burning platform that gets the culture and work force of that business to focus on the issues that are at their door.

TOM GARDNER:

Let me just create, right now off the top of my head, a couple of hypothetical succession scenarios. You tell me whether you think that sounds good ...

SCOTT MILLER:

Mm-hmm ...

TOM GARDNER:

They have brought in ... We're not even giving the industry. Since there are similarities between companies, they all have the same issues like margin compression, etc.

SCOTT MILLER:

Yes. [crosstalk 00:26:14]

TOM GARDNER:

They brought in somebody to be COO for two years, and if things go well, that person has been told you will be CEO and we'll have a checkpoint with you every three months over the next two years to determine whether you're the right person.

SCOTT MILLER:

Absolutely can work.

TOM GARDNER:

Absolutely can work.

SCOTT MILLER:

Not absolutely every circumstance, but definitely a way to begin to narrow the field. Get the company to understand that this person is going to be the successor. Give them a big portfolio or large percentage of the business to report directly to them. And allow them to begin to make the transition from, as my partner calls it, from being a "field general," which is what you're really doing in running major divisions to being a "Pentagon general," which is what you're doing when you're the CEO of a major business.

TOM GARDNER:

Awesome. Next scenario. CEO has told four people inside the company, "One of you will be CEO. I'm not going to tell you until I'm basically within six months of leaving, but over these at least three years, demonstrate what you have to showcase that you're the right person to be CEO."

SCOTT MILLER:

There's one very famous case where that was done.

TOM GARDNER:

Do you like the sound and the feel of that, or does that ... [crosstalk 00:27:39]

SCOTT MILLER:

I've had the privilege of getting to know Jack Welch quite well recently. I think in hindsight, the difficulty of that was they lost a lot of human capital when McNerney and Nardelli ...

TOM GARDNER:

Got it. Not just the person, but many of their teams left.

SCOTT MILLER:

Precisely. And so, my first job out of college was with the First National Bank of Chicago. A guy named Gaylord Freeman had been the CEO and he ran a bakeoff similarly. And Bob Abboud became the successor CEO. A guy named Dick Thomas, who was one of four in consideration, became the president. The other two in consideration left and became either presidents or CEOs of other big banks. And to your point, they actually had their own insider guys, and all of them went with them and there was a major dislocation in the company from a talent perspective. So, I think while competition is good — and let's be clear. Becoming the CEO is a very competitive activity ...

TOM GARDNER:

Continuity ...

SCOTT MILLER:

Continuity is important and I think messaging to the company so that we're not creating fiefdoms and tribal warfare is also and probably increasingly important. I'm more to the former model versus the latter — but it's all circumstantial.

TOM GARDNER:

Okay, let's go with this one. We'll even call it "Duke Basketball." And therefore I'm almost biasing you to like this scenario, although you may hate Duke hoops. I don't know. But I'm just talking about the success of that program. Our company — we're coming to the Miles Company to get your guidance. Our game plan is to intentionally select a very young person who works at our organization because we think one of the reasons founder-CEOs have worked is because that founder typically has led for 25 years ...

SCOTT MILLER:

Correct ...

TOM GARDNER:

We want to set somebody else up to lead for 25 years — not to take over at the tail end of their work.

SCOTT MILLER:

Right. Again, circumstantially a very compelling proposition if you have the right person to fill that job. I think it's hard to be a public company CEO today. I think the average tenure ... I believe Spencer Stuart publishes ...

TOM GARDNER:

Seven years ...

SCOTT MILLER:

Oh, no. It's under that. It's closer to four ...

TOM GARDNER:

Yes ...

SCOTT MILLER:

And then there are the exceptions. Ivan Steinberg who was at Verizon, I think, for something approaching 20 years. But that's the unusual circumstance. The Jack Welch tenure at GE is today unusual — maybe because markets are moving faster and there are more demands on CEOs. Maybe because there's more transparency and visibility. But I think the expectation ... Maybe Duke Basketball ...

TOM GARDNER:

Or maybe there's more impatience ...

SCOTT MILLER:

There could be. I mean, it's a combination of things. I think people would point to Michael Eisner's tenure at Disney and say ...

TOM GARDNER:

The first half was awesome ...

SCOTT MILLER:

Exactly ...

TOM GARDNER:

The second half ...

SCOTT MILLER:

Yeah. Maybe not as good. And who knows?

TOM GARDNER:

And Bob Iger? Unbelievable and he's not staying for 20 years.

SCOTT MILLER:

Correct.

TOM GARDNER:

[00:31:25] tenure.

SCOTT MILLER:

Exactly. I think part of a CEO's job is obviously preparing the company for a successful succession. I mean that's absolutely, as a priority, maybe the most important thing that a sitting CEO does. But also, actually then understanding when it's the right time for them to go. When the organization will benefit from a different set of eyes. New blood. New energy.

I actually remember ... Two hotels. General managers are actually charged with running each hotel. They're responsible for the P&L of each of them. They're equal size. They're both doing well in their markets on a RevPAR basis and competitive-set basis. And they've each been there for a tenure of, call it four to five years.

You actually take them, switch them and put them in one another's hotel ... and actually what happens is the performance of both hotels goes up. They were well functioning. These were good managers. You took them. You put them in a different environment. They brought new energy. They stressed different things one to the other and as a result of that, both properties improved.

I think the idea that CEOs could actually serve more than one company — that's sort of interesting. You could have a tenure here for five to seven years and scale to something that's much bigger. That's another ...

TOM GARDNER:

How about running a couple of companies simultaneously — like Jobs did for a while? And Elon Musk? He's a real outlier.

SCOTT MILLER:

Yes, well that's real outliers and frankly, probably, almost prohibited in a public company setting today.

TOM GARDNER:

What did you think of the Apple succession plan to the extent you have any opinion of it? Let me share my opinion and you shoot it down ...

SCOTT MILLER:

Yes ...

TOM GARDNER:

Please. Shoot me full of holes. I'm not excited about a technology company in a pretty dynamic marketplace where the CEO turns the leadership over to the COO. I don't know whether I'm drawing a useful analogy. They're obviously very different companies in many ways.

But Microsoft (NASDAQ: MSFT  ) — Bill Gates to Steve Ballmer — to the COO who's basically gotten everything done. Almost it's possible that the CEO in that situation is like, "Hey, listen. This is part of the way I say thanks. You've been an incredible lieutenant for me and it's now your turn to lead." But that person may not have the creative, visionary drive for that technological environment of change to run it ... and that's my question about it.

SCOTT MILLER:

Again, not to evade the question. I think it's situational. I think the jury's out in terms of Tim Cook.

TOM GARDNER:

I agree.

SCOTT MILLER:

Two things that you can say he's done absolutely, really well. He's maintained the Apple culture. That company is still a very desirable place to go to work and their performance metrics in terms of getting to market, delivering product, selling that product and earning money on that product ...

TOM GARDNER:

His businesses are A-plus.

SCOTT MILLER:

... is unbelievable. And he was largely responsible for that. So the question becomes was Steve really the CEO before or was Tim actually operating as the CEO and Steve was the visionary and the product genius? And so the question for Tim is where does he get that input?

And clearly, I think the market would say Steve Jobs was a unique human being and so Tim's got to figure out who to get it out of — Jony Ive and four or five other people who are going to be very influential. Maybe at the end of 2014, as we go through this product cycle, we'll know more. What does the iPhone 6 look like if there is one? Is there an Apple TV? Are they going to go to wearable technology and what will that look like? I'd say the jury is way out ...

TOM GARDNER:

Yes ...

SCOTT MILLER:

I think it's incorrect to frame a COO role as just being an operator. I think they oftentimes can have the breadth that's required to be a CEO. It's all situational and who they work for.

TOM GARDNER:

What do you think the success rate — maybe I'll say at public companies. By the way, I realize that all these questions are, in fact, possibly talking about potential or existing G100 members, so I hope I'm not putting you really behind the 8-ball on this ...

SCOTT MILLER:

No, no ...

TOM GARDNER:

What do you think the success rate at public companies — to the extent that we can even define what success is — of succession is?

SCOTT MILLER:

Again, Spencer Stuart does some pretty serious empirical work and I'm going to get these numbers wrong, but I think order of magnitude, they're sort of right. I believe that companies that promote from within have a much higher success rate than companies that hire people from the outside. That almost, though, is a given because you would almost argue that companies that have succession internally ... that's the natural course of things. Things are working really well at the company. As I was talking about before, the bias for succession from the outside is where there have been big paradigm shifts ...

TOM GARDNER:

Major disruption. A turnaround, perhaps ...

SCOTT MILLER:

Exactly.

TOM GARDNER:

Does that study slightly undermine Spencer Stuart's business? I don't know if they do an internal [00:37:42] review.

SCOTT MILLER:

But yes, absolutely they do. They would think of their business as, again, human talent. I think the notion that people think of them for is we go and recruit and fill empty positions. But at its most refined, they're really counselors to CHROs and heads of talent and CEOs and boards of directors ... helping those companies think about how do they train and then attract and retain the best talent in their company — whether that's internal or external.

TOM GARDNER:

Would you say — I have in the past said this — that if I had to invest on one factor alone, which is an absurd hypothetical. If I look just at the product, I can't look at anything else in the business. If I look just at the CEO, I can't look at anything else. My answer has been I would look at the rate of retention of employees versus the competition in their industries. I don't want to compare a restaurant to a software company ...

SCOTT MILLER:

Right.

TOM GARDNER:

But I'd like to know that people are staying and that that stakeholder, I believe, as a long-term investor, will drive up the average.

SCOTT MILLER:

Exactly. You want to make sure they're staying for the right reasons and not as a default matter. But certainly retention speaks to culture — and if you have a great culture and you have long-tenured people — and you've done a very good job of hiring on the front end, then that's actually a great metric.

TOM GARDNER:

Do you invest in public companies at all?

SCOTT MILLER:

Yes.

TOM GARDNER:

If so, what are some of your principles? How do you think about your portfolio? How many stocks do you like to have in a portfolio?

SCOTT MILLER:

I must say I've given most of it over to professionals and my actual individual stock picking may actually revolve much more around market positioning and technologies that I think are going to be very disruptive. But I am a very big believer in leadership. What's the adage? "Give me a crappy strategy and a great leader versus a great strategy and a poor leader and I'll take the great leader every time." Because I do think leadership ...

TOM GARDNER:

The leadership of Herb Kelleher at Southwest ...

SCOTT MILLER:

Exactly ...

TOM GARDNER:

One of the worst industries in history and greatest-performing stock for a 30-year period.

SCOTT MILLER:

Yes, precisely. He came with a unique proposition. He came with an incredible passion and a simplified model and he just communicated that relentlessly, as we spoke about earlier. Everybody at Southwest understood what it was they were trying to achieve. And that was we're going to deliver really cheap seats consistently and then we're going to delight our customers when they show up. And we're going to make this fun and we're going to make it transparent. We're not doing anything different than the other airlines. We're subject to the same FAA restrictions that say you can and can't fly today and largely dictate on time or not kind of arrivals. But in the process, we're going to make this fun. And we're going to strip it down to its basics.

TOM GARDNER:

What are a few examples out there of disruptions with a great leader? Of exciting new developments that are led by somebody that inspires you to either have invested in them or think about investing in them?

SCOTT MILLER:

I'll give you a very mundane business, but I think Jim Hackett, who ran Steelcase ... He bought IDO at one point in time. And because he was such an incredible student of business, he wanted to understand how does innovation happen. And he deployed something that I think we're going to hear a lot more about in the coming years, which is this notion of design thinking ... really thinking in systems. Not only am I thinking about the product and how do we take it to market, but simultaneously I have to think about how I'm going to hold it as inventory. How am I going to manufacture. It's a holistic kind of thinking about ...

TOM GARDNER:

Innovating [crosstalk 00:42:11] aspect of what you're doing.

SCOTT MILLER:

Right. Exactly.

TOM GARDNER:

Elon Musk? What do you think?

SCOTT MILLER:

I don't know him. You know what?

TOM GARDNER:

Have you driven a Tesla?

SCOTT MILLER:

I've been in one. I have two friends that own them. They're little rocket ships. They're really compelling from a technology perspective ...

TOM GARDNER:

Yes.

SCOTT MILLER:

I'm not altogether certain I understand the market cap, just given how many of them ...

TOM GARDNER:

[crosstalk 00:42:39]

SCOTT MILLER:

Yes. How many of them they can actually deliver, but it's compelling and it does show you can take a market where others have failed and you can create a lot of buzz behind it and deliver an outside return. And I attribute that to great leadership and a very clear message about what it is that we're trying to do.

TOM GARDNER:

If I could boil the Scott Miller approach to public market investing — at least one sleeve of it. You have all this money being managed in this way and you may make other investments a different way — but you would love to find a high-growth smaller company with a very convincingly inspiring leader?

SCOTT MILLER:

Correct. I really do ...

TOM GARDNER:

What do you think your hit rate would be, just taking those three factors through the public markets? I mean, you're obviously going to have some mistakes out there, but you'll end up with some serious multi-baggers ...

SCOTT MILLER:

Yes, I think so. I think some of these young entrepreneurs ... Look at what Facebook has done just by sticking to it. I mean, putting their head down ... And think about where they were 24 months ago. Their stock price is half of their IPO price. They've got probably five years of employees who are now out of the money and somehow Lori, who runs HR ...

TOM GARDNER:

And they're not really functioning in mobile ...

SCOTT MILLER:

No, exactly ... at that point. And Lori and Mark and Cheryl — the people there were able to make certain that the core people that mattered most to them all stayed. They didn't have this mass exodus because I think the message and the culture and the leadership there is very good. They rode their way right out of it. And today it's what? $55? $58 something?

TOM GARDNER:

Yes.

SCOTT MILLER:

Leadership really, really matters. I don't know the Zynga story as well, but I don't think leadership was nearly as well executed there. It's interesting to think about, again. I don't know this story, so I want to be careful I don't get out over my skis ... but look at Netflix. They changed that model. The market hated it, at first. Now it's genius.

TOM GARDNER:

Yes.

SCOTT MILLER:

And you've got to be brave.

TOM GARDNER:

Well, that's why you need to diversify with those principles. That's why you need to accept that there are going to be some losses, but Netflix has been an absolutely unbelievable investment and a very volatile one ...

SCOTT MILLER:

Right ...

TOM GARDNER:

I mean, it's gone from $20 a share to $300, down to $50 up to $380 ...

SCOTT MILLER:

Right ...

TOM GARDNER:

... today and you'll get Amazon that had a similar unbelievable ride ...

SCOTT MILLER:

Right, exactly ...

TOM GARDNER:

... but they had some serious consistency of leadership and culture ...

SCOTT MILLER:

Right. Exactly. Exactly.

TOM GARDNER:

... through that high and low period for the stock.

SCOTT MILLER:

Exactly. Exactly. They're telling the same message and they're on the same mission and they are finding multiple ways. As time goes on, technology advances. Other market categories open to them to continue to apply it to the exact same set of values that they've had from the beginning.

TOM GARDNER:

Last couple of questions. I don't want to put you on the spot with this one, because I'm going to slightly dodge the Pritzker family in this way. There are a lot of people that are trying to figure out how to build their family plan ...

SCOTT MILLER:

Right ...

TOM GARDNER:

Their full family dynamic. You saw the Pritzker family scenario up close. You don't have to refer to that specifically, but what have you learned and what would you say to somebody who might be in their mid-sixties, looking across the two generations below them with assets and trying to figure out what are some of the principles that I should put into play?

SCOTT MILLER:

I think wealth, in the end, is a very personal benefit of life and you need to decide what's important to you. I happen to be a big believer in my own kids finding their own way because I think money can be corrupting — and if not corrupting can cause them to make turns that they wouldn't otherwise make if they were really going out to ...

TOM GARDNER:

[crosstalk 00:47:12]

SCOTT MILLER:

Exactly. Going out to achieve. So, I think it's a very hard thing to give another person advice about what they should do with their wealth. They've got to find it within themselves. That said, the genius part of Pritzker was that it started way back in the '40s and '50s. A. N. Pritzker had a very clear vision about what it was that they wanted to achieve and they set up a framework that was very unique for their family that they could execute against on a long-term basis.

And it comes back to that same principle of really good leadership, establishing the framework for how it is that we're going to achieve it and being very, very consistent about what it is that we're trying to achieve.

TOM GARDNER:

Mm-hmm ...

SCOTT MILLER:

I think those principles apply to that, as well. And it goes to making certain that you instill in the second and third generation the values that are so important to you and helped you achieve whatever level of success you've achieved. Because the achievement without the values is a recipe for disaster.

TOM GARDNER:

I guess the Rockefellers have done a pretty incredible job ...

SCOTT MILLER:

Right. And again, I don't know them, but there are many families that have done a very good job. Done it quietly and done a very good job of instilling great values in the second, third and fourth generations.

TOM GARDNER:

 My final question is what are you most looking forward to in your work right now? Or in life?

SCOTT MILLER:

I think this whole notion of human capital being a real differentiator — it motivates all elements of the businesses we're involved in and I think it's fun. I mean, I like the interaction. I like meeting lots and lots of new people and talking about that and thinking about ways to help us, as an economy, build better leaders.

TOM GARDNER:

I first encountered Scott at the G100 event. This last final question — it's my favorite thing to do — it's truly unfair, but I love to end with a very unfair question.

SCOTT MILLER:

Yes, perfect.

TOM GARDNER:

Who won the debate, in your opinion, between Jack Welch and John Mackey? Who was the winner? They can't be equal. There are no two apples equal in size.

SCOTT MILLER:

Exactly. Here's the reality. I would say that the winner of the debate was the interpretation in the middle. So, the topic that we were discussing was John Mackey's notion of conscious capitalism and essentially doing well by doing good. And John Mackey comes and says — and it is true — unfortunately business has a very poor reputation in the American public. I think people wanted to frame the debate to say Jack ran this old-school company that wasn't ...

TOM GARDNER:

That trampled over every stakeholder that [00:50:27] the stock ...

SCOTT MILLER:

Exactly. But Jack would make the point, and I think it's really absolutely true. They did absolutely understand who their constituents were beyond the shareholder, employee and the customer. They understood that Schenectady, New York was a really important community for them and they, GE, really invested in that community.

I think the debate was more vocabulary differences than actually real differences and I do think all of us, as business leaders, need to be expounding the notion all the time of doing well by doing good. And it's where I said earlier. I think that mission values and strategy really matter ... and as part of articulating missions, values and strategy ... you need to be really clear what you, as a company, stand for and what kind of contribution you're making back to society beyond a financial return for your shareholder groups.

That can be through product and that can be through company participation in the communities that they represent. That can be in charitable activities where Paul Polman's doing it with water at Unilever. There are a variety of ways.

TOM GARDNER:

You can be joining a network and sharing what it is that you've learned in your best practices with companies in different industries. [00:52:02].

SCOTT MILLER:

Absolutely. Please do.

TOM GARDNER:

It was funny. That debate for me is that Jack Welch is chief learning officer — who created Crotonville with Steve Kerr, who's on our board and John Mackey is on our board. So, I've heard from both of them the language of the importance of culture and the importance of looking at your teams and people as a strategy, not as some sort of asset or an expenditure ...

SCOTT MILLER:

Exactly. And both of them were exemplary at doing that and in a way, they reflected the time that they were serving in the position. But I promise you if Jack were to start a business today — he's got the Welch University ...

TOM GARDNER:

Then the principles of conscious capitalism ...

SCOTT MILLER:

It is, because he believes in business being a net contributor. And it is, and we just do a poor job of communicating the ways that we contribute to society.

TOM GARDNER:

Scott Miller, thanks for joining us. Who's going to win the Broncos/Seahawks game?

SCOTT MILLER:

I am a big Broncos fan, so fingers crossed.

TOM GARDNER:

I'm rooting for them, so I wish you the best. Thanks, Scott.

SCOTT MILLER:

All right, thank you. Bye bye.


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