leadership challenges in the context of demographic change
DESCRIPTION
Lecture given at HHL's MBA Leadership Seminar on 26 May 2004.TRANSCRIPT
Leadership Challenges in the Context of Demographic Change
Dr. Johannes Meier
HHL, Leipzig, 26. 05. 2004
Seite 2
Aktion Demographischer Wandel
20. 5. 2004
Our Future?
Seite 3
Aktion Demographischer Wandel
20. 5. 2004
Agenda
1. Demographic change in Germany: Need for a turn-around
2. Complication: Bail-out opportunities for the talented and wealthy
3. Excursion: How to manage a corporate turn-around
4. Application of leadership lessons from corporate turn-arounds to demographic challenge
5. What does it mean for you?
Seite 4
Aktion Demographischer Wandel
20. 5. 2004
Agenda
1. Demographic change in Germany: Need for a turn-around
2. Complication: Bail-out opportunities for the talented and wealthy
3. Excursion: How to manage a corporate turn-around
4. Application of leadership lessons from corporate turn-arounds to demographic challenge
5. What does it mean for you?
Seite 520. 5. 2004
Germany‘s population will shrink dramatically until 2050
50 55 60 65 70 75 80 85
DIW Var. Ia
BMI Var. A
Statistisches Bundesamt V1
United Nations
IBS-Bielefeld, mittl. Var.
Eurostat
Current State
Bevölkerung in Deutschland in 2050 in Mio. Personen
Quellen: Enquete-Kommission „Demographischer Wandel“, UNFPA, EUROS-TAT/Economic Policy Committee, Bundesministerium des Innern. Source: Enquete-Kommission Demographischer Wandel, UNFPA, Eurostat, Bundesminister des Inneren
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Aktion Demographischer Wandel
20. 5. 2004
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Erwerbs-personen
in Tsd
1996 2000 2005 2010 2015 2020 2025 2030 2035 2040Jahr
Source: Fuchs/Thon 1999,
The working population will shrink most dramatically
Seite 7
Aktion Demographischer Wandel
20. 5. 2004
Source: Fuchs/Thon 1999,
25
29
24
22
21
25
30
23
21
21
31
27
21
21
27
31
20
23
23
34
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1996 2005 2010 2015 2020Jahr
50-jährige und älter
40-49- jährige
30 bis 39-jährige
bis 29-jährige
Quelle: Statistisches Bundesamt, Prognos
The aging of the working population has started already
Seite 820. 5. 2004
Employment Rates of Older People (55 – 64 Jahre)
Source: OECD-LMS
20,0
25,0
30,0
35,0
40,0
45,0
50,0
55,0
60,0
65,0
70,0
Deutschland
Schweiz
Irland
Niederlande
GB
Dänemark
USA
Finnland
Seite 920. 5. 2004
The baby boomers are moving towards retirement
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
Jahre
in 1
00
0
Daten 2000
Projektion2010
Projektion2020
15-19 20-24 30-3425-29 40-4435-39 45-49 50-54 55-59 60-64
Seite 1020. 5. 2004
The debt crisis (I): Spending commitments
0
10
20
30
40
50
60
70
80
90
100
2005 2010 2020 2030 2040 2050
75
80
85
90
95
100
105
Source: DIW; middle sceanrios and status-quo taxationt; Färber, 1995
Pension entitlements
Cities, CountiesState
Fed. States
%Mrd. €
Seite 1120. 5. 2004
0
10
20
30
40
50
60
70
80
90
100
2005 2010 2020 2030 2040 2050
75
80
85
90
95
100
105
Direct taxes
VAT
Total tax
Tax Income
%Mrd. €
The debt crisis (II): Shrinking tax income
Source: DIW; middle sceanrios and status-quo taxation; Färber, 1995
Cities, CountiesState
Fed. States
Pension entitlements
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Aktion Demographischer Wandel
20. 5. 2004
Need for a turn-around
Public social systems will collapse unless changed fundamentally
Pay-as-you-go-system of pension financing no longer robust given jobless rates and demographics
Financing for health system linked too much to employment income as basis for contributions
Corporate pension systems likely to be under-financed
Prevalent accounting practices may not properly reflect the longer life expectancy of former employees with pension rights
Education system not performing adequately to guarantee necessary productivity increases to maintain prosperity levels
PISA-study reveals fundamental deficits in education system
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Corporate warning signs
Significant differences in accounting practices and interpretation by rating agencies of on- vs. off-balance sheet funding of pensions
IAS accounting practices regard pension commitments equivalent to credits (taking account of long-term capital market interest rates and future income and pension increases) whereas HGB accounting practices uses a fixed discounting factor of 6% without taking account of future income and pension increases.
• Thyssen-Krupp with on-balance sheet pension accruals of 6,6 bn € and 440 mill. € annual pension payments in defined benefits pension system was downgraded from 'Investment Grade' to 'Junk' status by S&P.
• Many corporations moving from defined benefits to defined contribution systems: 84 of the 1000 largest British corporations shut down their «Defined Benefits»-pension systems in 2002 (National Association of Pension Funds)
• British Telecom pension fund had assets of 25 bn £ in 2003 with commitments exceeding assets by 4,2 bn £.
• British Airways has off-balance-sheet pension fund assets of 10 bn £ and a market cap of 2 bn £.
Seite 1420. 5. 2004
Qualification structure of German population
Dramatic increase of youths
without formal degree or
finished apprenticeship by
age of 25
Seite 15
Aktion Demographischer Wandel
20. 5. 2004
Agenda
1. Demographic change in Germany: Need for a turn-around
2. Complication: Bail-out opportunities for the talented and wealthy
3. Excursion: How to manage a corporate turn-around
4. Application of leadership lessons from corporate turn-arounds to demographic challenge
5. What does it mean for you?
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Aktion Demographischer Wandel
20. 5. 2004
Complications: Bail-out opportunities for the talents and wealthy
Bail-out 1: Migration and brain drain• Intra-national migration: The emptying of some parts of the country• International migration: Brain drain towards attractive regions
(currently USA)
Bail-out 2: Career wins against child bearing especially among educated women• Better educated women get less children and at a later stage in life
Potential results of bail-outs for Germany• Note: School performance of children correlates with education of
parents• Risk: We may end up with those who do not have the talent, education
and mobility
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Aktion Demographischer Wandel
20. 5. 2004
Migration 1999-2020(Optimistic scenario)
Seite 18
Aktion Demographischer Wandel
20. 5. 2004
Agenda
1. Demographic change in Germany: Need for a turn-around
2. Complication: Bail-out opportunities for the talented and wealthy
3. Excursion: How to manage a corporate turn-around
4. Application of leadership lessons from corporate turn-arounds to demographic challenge
5. What does it mean for you?
Seite 19
Aktion Demographischer Wandel
20. 5. 2004
How to manage a corporate turn-around?
Lesson 1: Face reality• Fact-based analysis of drivers of success or failure• Performance metrics for the whole value-chain
Lesson 2: Create a positive vision• Without hope there is no reason why employees should bother• Positive earnings above the cost of capital are a must for survival
Lesson 3: Measure and celebrate success on the way• Many steps are necessary on all levels for an effective turn-around• Clear priorities need to be set and measured relentlessly• Celebrate each successful step!
Seite 20
Aktion Demographischer Wandel
20. 5. 2004
Agenda
1. Demographic change in Germany: Need for a turn-around
2. Complication: Bail-out opportunities for the talented and wealthy
3. Excursion: How to manage a corporate turn-around
4. Application of leadership lessons from corporate turn-arounds to demographic challenge
5. What does it mean for you?
Seite 2120. 5. 2004
More work for the young and the old is possible
Employment rates of young and older population segments, 2001
Erw erbstätigenquote 15-24 J.
706050403020
Erw
erb
stä
tig
en
qu
ote
55
-64
J.
70
60
50
40
30
20
USA
E
CHS
P
A
N
NL
L
J
I
IRL
UK
ELF
FIN
D
DK
CAN
B
AUS
Source: DIW
Seite 2220. 5. 2004
PerformanceMetrics
t
PositiveVision
‚Horror‘
Measures taken M1 .. Mx
5 Y. 10 Y.
M1
M2
MX
A paradigm for change
(
Seite 2320. 5. 2004
Szenario planning as tool for making vision concrete
Social civil society
Dynamic growth society
Tough competitive
society
Declining envy society
Nostalgic state society
Current state?
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Aktion Demographischer Wandel
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Demographic change as opportunity for wide-ranging innovation of society
FROM
• Longer life working time
• Need for private insurance
• Loneliness in old age
• Young generation as financial burden bearer
• Children as poverty factor
TO
• Ability to work longer
• Permission to work longer
• Freedom of own responsibility
• Contribution to society value chain in old age
• Young generation as our future
• Children as basis for meaning in life
Seite 25
Aktion Demographischer Wandel
20. 5. 2004
Agenda
1. Demographic change in Germany: Need for a turn-around
2. Complication: Bail-out opportunities for the talented and wealthy
3. Excursion: How to manage a corporate turn-around
4. Application of leadership lessons from corporate turn-arounds to demographic challenge
5. What does it mean for you?
Seite 2620. 5. 2004
What does it mean for you?
New concept of work
New concept of age
New concept of society
New concept of identity
• Additional focus on value add for society• Work outside employment contexts• Multi-generational, multi-level division of work
• Older age with large productivity potential• Older age with large responsibility to harness
productivity potential
• Opportunity for civil society• Competition for talents and youths among
communities
• Balance between self-interest and interest in self• Multi-cultural, global development space