The CEO as change leader.

To meet the diverse challenges facing your company, take a deeper look at the fundamentals and assess the leadership needed to take you to the next level.

"You can either lead change or you can suffer from it," said Sir Deryk Maughan, chairman and CEO of Citigroup International and vice chairman of Citigroup, Inc. In the past year, of course, some would argue that Citigroup has done a bit of both. But then, as Maughan pointed out to the assembled business leaders at this year's CEO2CEO Conference, the financial services business is industria non grata these days, routinely pummeled by the corporate scandal police even as its members race to reexamine their operating policies.

"Citigroup faces radical transformation, in the sense that public trust and confidence have arisen about our industry as a whole, but also about Citigroup in particular," conceded Maughan. "We do not believe that the issues surrounding the use of research by investment bankers or their clients, the allocation of IPOs or other matters that may be investigated -- which will lead, no doubt, to regulatory reaction -- speak to the business model itself. Citigroup is more than the IPO business.

"But Citigroup is not a company to live in denial," he continued. "We are doing our very best in the face of multiple investigations to establish a new standard for the industry. And where there is no agreement on what those standards might be, we will do what we consider to be appropriate for our customers going forward -- and then conform to whatever rules society Congress or the regulators may create."

Many to Grow On

Taking a company from being the subject of ugly headlines to one known for setting industry standards is a tall order, but Citi may well make good on the promise. After all, this is a company well-schooled in transformation, as anyone familiar with its track record in finessing strategic combinations can attest. Tricky and even fatal for most companies, acquisitions have become Citi's preferred method of growth -- and its proficiency at closing deals and synchronizing operations is a key component of its ability to thrive, Maughan noted.

"Most of us live in very dynamic marketplaces, where without an entrepreneurial culture and the ability to manage risk the natural law is one of degradation of market share, profitability and capital," he said. "I argue that we live in an era of radical change, and strategic combinations are the only way to respond to that change. So the key question becomes: How do you approach those opportunities, and how do you implement them?"

Citi, which made 40 acquisitions in 2001 alone, seems to have worked out the answer. The right combination of discrimination and discipline is one common denominator of success, according to Maughan. "The great acquirers, at AIG and at GE, understand very well that there's a price at which you do not do a deal," he explained. "Not having the discipline and the skill set to accurately value another company -- and to preset the price you will pay before you enter the room -- is [one of the reasons] that, according to most studies, 60 to 70 percent of deals fail."

Speedy integration is another principle Citi lives by with its M&A activities. "Ahead of the closing, we establish a full integration team that will deal with all the aspects of the newly combined entity," said Maughan, noting that an active, managed process smoothes the process. "Those who take six months to talk about it and a year and a half to execute it take on enormous operational challenges. So we set specific, week-by-week, almost day-by-day timelines, from the date of announcement as to when various things have to happen in different dimensions. It's an active, managed process."

Citi also makes a point of treating its acquirees with respect -- a purely profit-motivated policy "It's not an attempt to be nice or politically correct; it's a recognition of what you are buying," explained Maughan.

"Our culture is thought to be flexible enough, multinational enough and diverse enough to accept other companies without eradicating their people," he said. "Classically, when you see an acquirer blow out the talent base of the target, things will not go well. You need to find a way to bring your competence to bear, which is at the core of the value to be created, with a sensitivity to the management and the people of the acquired company."

Chief Talent Officer

Respect for talent, agreed John Alexander, CEO of the Center for Creative Leadership, is paramount in today's challenging business environment. "Leadership is no longer a solo act," he said. Moreover, companies coping with radical change must continue to develop their top talent -- whether acquired, hired or internal. "No one person can do everything -- be the chief strategy officer, chief marketing officer, chief M&A officer, etc. So it's clear that one of the major roles of today's CEO is to develop, recruit and motivate highly talented people who can make these things happen and can gain the alignment that we need in our organizations to make decisions and move forward."

Yet at a time when layoffs and corporate cutbacks are the norm, more often morale suffers and leadership development can slip through the cracks. "Think of it as a boat race' suggested Len Sherman, a partner in Accenture's learning strategy and development practice. "You as the CEO are the coxswain and you have eight oarsmen, and you're in the race for your life against a competing crew.You go through prerace strategy, the gun goes off and to your horror you see four of the oarsmen just sitting [and] going along for the ride, two rowing feverishly in the right direction, two rowing just as hard in the opposite direction and maybe even punching a few holes in the boat.

"That's the challenge that a lot of work forces exhibit today -- getting the alignment, the motivation and the skills all to work so you have eight oarsmen with the right skills going in the right direction?'

To achieve it, he asserts, companies need to forge a "business interlock", or link their business strategies to learning requirements and performance objectives. "When broadly applied across your enterprise, business interlock gives the learning organization a seat at the management table' Sherman said. "Each new business initiative, whether it's the introduction of a new product or the assimilation of a work force through an acquisition, has explicitly defined learning objectives: What are the capabilities and skills required, by whom, when, at what cost and how should it be delivered? Every time you need to execute a key function, you can translate that very forcefully and directly into supporting learning objectives."

CNBC's Culture Club

In times of dynamic change, however, it's essential for companies to first create a "felt need for change," according to CNBC CEO Pamela Thomas-Graham.

"Create a vision for people about what the future can be, and don't wait too long to start implementing that process:' suggested Thomas-Graham, who became CEO in July 2001 and promptly set about building a new platform for the 12-year--old network. "A lot of people didn't want to accept the fact that the economy was going to be bad for a while, which meant that nobody actually wanted to change in a dramatic way. We were so young as a network that we were terrified of doing anything different, because there had been a lot of success associated with what we had done."

Focusing on culture helped center the company around its core mission of being the source for the most real-time, credible information about the world of business. "We had to become much more nimble," Thomas-Graham explained. "We did that by clearly communicating to everyone in our company that the way we were going to run the business is, the best idea wins. It was not going to be about one person at the top dictating our programming strategy. It would be an open conversation with everybody talking about what the programming strategy should be, what the best opportunities would be, and getting a lot faster and tighter iterations of how we change our schedule, focused in part on culture."

"Some of these things may seem obvious, but executing them is not so easy - particularly when there's more pressure on prof- it than there was in the past," she added, noting that when the market exploded many expected CNBC's success to fade. "The fact that we are as profitable now as we were [in 2000] speaks to the team we've got and to the spirit of innovation that we've tried to create that says we can change quickly, we can adapt to a new environment and we can make smart choices about how we spend our resources.

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The Importance of Being Ethical

"CEOs really need to walk the walk as well as talk the talk, because employees take their lead from senior management. If they perceive that a manager looks at the code of ethics, the procedures and values articulated in public by management as not being as important as hitting your numbers or getting the deal, then you will see shortcuts taken and you will to find yourself on the front page of the Wall Street Journal with some investigative reporter writing about your company."

-- Sharie A. Brown, Partner, Foley & Lardner

Reforming Reports

"The SEC and guidelines from groups like the National Investor Relations Institute and the exchanges have made companies change the way that they're structuring news and earnings releases. Our analysis of earnings releases issued by Fortune 500 companies through the Q2 of 2002 found that releases had changed when compared to Q1 in 2002, as well as a year earlier, Q1, 2001. We found clear trends that companies are including detailed financial information, more MD&A, more footnotes to financials and more historical comparisons. For example, 60 percent of the Fortune 500 included a balance sheet in Q2 2002, as compared to 55 percent in Q1 2002 and 47 percent in Q1 of last year. Twenty-six percent of the Fortune 500 included cash flow statements in Q2 of'02, as compared to 22 percent in Q1 of '02 and 17 percent in Q1 of '01 ."

-- David Armon, President, PR Newswire