The Myth Of The Moron CEO
While median wages are flat or even losing some ground, CEO pay is at an all time high. The average corporate chief now makes $12.3 million, hundreds of times what the average worker brings home, a ratio that has increased 1000% since 1950.
That makes chief executives an easy target. As my Forbes colleague Adam Hartung made clear in his article, Oops! Five CEOs Who Should Have Already Been Fired, when things don’t go well, the knives come out, quickly.
I don’t cry for the pampered executives, with their perks and golden parachutes, who can soothe their wounds with a nice bottle of chardonnay by the golf course (while laid off workers face foreclosure instead), but I do think if we’re are going to vilify them we should at least get the story straight. Too often we don’t and that’s a problem.
The Blockbuster Buffoon
When Netflix’s Reed Hastings and his team went to Dallas to pitch a partnership to Blockbuster in 2000, they were laughed out of the room. Ten years later, Netflix is a $14 billion dollar company and Blockbuster is bankrupt. John Antioco, the CEO at the time, is now widely considered a buffoon, a moron, an idiot and worse.
However, take a closer look and the story isn’t so simple. As Antioco described in a HBR article (and nobody disputes his facts), after initially dismissing Netflix as a niche player, he soon saw the writing on the wall and moved quickly to discontinue late fees and invest heavily in an online platform.
The moves earned him not plaudits, but a proxy fight and before long Carl Icahn was in control of the company. Antioco was removed as CEO, late fees were reinstated and investments in the online platform were curtailed.
Would Antioco’s plan have worked? We’ll never know, but what’s clear is that he had an impressive career before Blockbuster, made important contributions to its earlier success and it was not he, but Carl Icahn (who many consider to be a visionary) and a highly credentialed board who presided over Blockbuster’s demise.
The truth is, most CEO’s are neither heroic titans of capitalism nor Monty Burns type villains, lording haughtily over Dickensian sweatshops. Most of the time, they are just people trying to do the best job they can.
The CEO’s Who Should Supposedly Get The Axe
Hartung lists five companies whose CEO’s he thinks should get the axe: Cisco, GE, WalMart, Sears and Microsoft, three of which (GE, Wal-Mart and Microsoft) are among the top ten businesses in the world in terms of market capitalization. A fourth, Cisco, was formerly the most valuable company in the world before the dotcom bubble imploded its entire category.
Two of the CEO’s, Ballmer of Microsoft and Immelt of GE, took over from legendary leaders right before hard times hit in 2001, both of whom have had to deal with immense disruptions in the legacy businesses they inherited (PC’s in Microsoft’s case, finance in GE’s).
Also singled out were David Duke of Walmart (the bribery scandal was cited), John Chambers of Cisco and Edward Lampert of Sears (okay, he does seem like a jerk). Even Jamie Dimon of JPMorgan Chase did not escape the wrath of Mr. Hartung.
It’s a curious perspective, given that all of the companies named (except for Sears) are highly profitable and at or near the top of their respective industries.
A Bias For Shiny Things
Mr. Hartung gives various justifications for meting out his sentences, some more justified than others. Walmart’s conduct in the Mexican bribery scandal does appear to be outrageous (although, in some markets, the line between a bribe and a mandatory grease payment is often hopelessly blurred).
Others have had missteps as well. Ballmer’s foolish dismissal of the iPhone was a blunder of the first order. Dimon’s lack of oversight cost his company billions. Immelt and Chambers haven’t been able to articulate a clear strategy to the markets and so on.
However, the evidence appears to be selective at best. If Ballmer is to be blamed for missing mobile, he should be praised for Kinect, the fastest selling consumer device ever, as well as the extraordinary success of the Servers and Tools business. If Dimon’s full record is to examined, certainly his skillful navigation of the financial crises should be included.
There are other problems with Mr. Hartung’s analysis as well. He uses stock performance over arbitrary periods (the pre-crisis period of 2000/2001 seems to be a favorite benchmark) and doesn’t index to market or industry factors. Mostly, his criticism seems to stem from the fact that these CEO’s do things differently than he would.
That seems a bit thin to me. As a former CEO I can attest, when you hold the job just about everyone thinks they can do the it better than you do. Moreover, Mr. Hartung’s analysis doesn’t approach the issues as a manager would, with an examination of profitability, competitive position, strategic options, etc.
An Age Of Continued Disruption
As I noted above, I see no reason to feel sorry for CEO’s. As a group, corporate chieftains tend to be an arrogant, overpaid lot. However, I also see a problem with pundits whose reaction to every misstep, real or imagined, is to “throw the bums out,” without making a careful, thoughtful business analysis.
We should also consider that average CEO tenure has dropped significantly and outgoing bosses are increasingly replaced by outsiders. This creates a period of confusion as the new CEO gets up to speed, evaluates the business and puts in a new team. Perhaps not surprisingly, research suggests that management discontinuity hurts performance.
In fact, 80% of CEO’s of S&P 500 companies end up getting the axe before they reach retirement. They can’t all be bums. Many, if not most, are highly competent, dedicated professionals who face an increasingly disruptive marketplace. If the standard for continued employment is omniscience, no one will measure up.
And that will make it impossible for any public company to maintain any semblance of strategic continuity or long-term thinking. The rational strategy for any executive would be to juice up earnings for a few years, collect some bonuses and then live out a luxurious existence sitting on boards and playing golf.
Hey, maybe CEO’s aren’t such morons after all…