CEOs Are Faking It
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Of course they are. I've been learning this more and more as I work in business, both for myself and others. And I didn't need a Stanford Professor to tell me. Even Andy Grove admitted that no business leader has "a real understanding of where we are heading."
I have friends tell me about these great ideas and very smart people running their small companies. I hear about them growing some other company and building a great business. And I think a lot of it is good timing and luck, not incredible business skills. Not that there aren't people that do a better job of running companies, but as I've spent lots of time in corporate America and observed small and large companies, CEOs and Presidents, I've realized that they don't have a magic answer to succeed.
Jack Welch wrote a book about how he built an incredible company at GE. And I don't deny that he made some good decisions and did well, but a lot of his time there was during an incredible bubble of growth in the US, and he presided during a great growth period in the 80s. He also had a great financial investment arm that did some VC work and placed some great bets.
But they were bets. More succeeded and the company did well, but if Mr. Welch had ascended the throne in 1999, would he still be the amazing manager and leader we see him as? Perhaps, but I don't think that he would have done as well. While I do think he is a leader, and a good executive, I don't know that he was the biggest reason.
In business, small or large, we are always confronted by decisions. We sometimes have a good idea of what to do and sometimes not, but we have to place a bet on something. I'm really not sold that those of us that do well, really knew we would do well. We might have believed in our abilities, but I think that a large part of our success is stumbling into good decisions, and recognizing bad ones quickly and dealing with them.
I don't want to imply that we're blindly throwing the dice around, but I see sound business people fail all the time. There's a good amount of timing in succeeding and a good portion of timing, IMHO, is luck.
So stop paying the CEO's so much money. They're not the reason for the company succeeding.
Steve Jones
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Unfortunately I feel that some problem (perhaps more strongly so) applies to our political leaders. In a 'business' where image and the appearance of knowing what to do is everything, some very bad decisions are made.
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-- FORTRAN manual for Xerox Computers --
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Without leaders, they wouldn't have brought together the right kind of people to make the business succeed like you and I.
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The best leaders are ones who make decisions where its always some degree of social surplus 'win'.
One can use luck, macro-economics and / or a legion of lawyers to make it happen.
According to Walter Rodney, most european companies have made their wealth at the expense of Africa.
http://www.zabada.com/zabada/amazon/viewItem?id=0882580965
The early trading companies and policy of piracy adopted by the european leaders made immense wealth from 1300-1500. This being nothing new but might explain where the IMF and those bodies obtained its pull against the rest of world.
I'm not apologising for that behaviour. But I would expect the same done to us (the first world) if the opportunity arose (you might see that in all the chinese and pacific rim products that we depend on) . I realise that this has been human social nature for all cultures that last to attempt to increase theri social surplus over others.
Current business models though use those underdeveloping giants shoulders to stand on as a point of risk allowance. For were they on the short stack they would not be able to let the boat sail with the wind as much, nor dictate the place of business engagement.
Since in my opinion the majority of international business friendly wealth sits either at New York, LA, or in the UAE and Tokyo, all other business must bring their wares to those locales and the additional cost incurred with transportation work against those who are not near them.
Knowing this, many CEO's and corporations can more easily be succesfull by trading near those 'Mega-metropoles'.
So 'faking it' is not really correct.
For you can plagarise any business style and not carry the negative connotations found in the literary or art fields. In many cases it is cultural badge to wear, especially if successful. I would assert that by CEO's adopting and building on previous underdeveloping techniques and exploits, this then allows them to appear successful.
And as long as my dividends and splits occur then I'm happy.
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"So stop paying the CEO's so much money. They're not the reason for the company succeeding."
I agree in part and disagree in part. Yes, there are a number of business success factors that are outside of a CEO's direct control. Yes, sometimes timing is everything in life. However, the fact remains that CEOs are assuming a tremendous amount of risk. If anything negative happens to the company on their watch, they get the blame. The risks are even greater now thanks to ill-advised laws like Sarbanes-Oxley. CEOs are usually the face of the company. CEOs are looked upon to provide leadership and motivation for the company's workforce. These are the reasons they are paid so much money.
Does every CEO deserve to be well paid? Of course not. There are plenty of CEOs who are dragging their companies down. That doesn't mean the CEOs who succeed should be punished.
It doesn't matter if the CEO knew that he or she would succeed or not. How many times have you known in advance that a decision you made would succeed? Are you being paid for your clairvoyance? I hope not!
This editorial smacks of the class resentment that has become all too common in certain circles. Capitalism has its problems, but it is still far preferable to the socialism that has taken hold in so many other countries of the world. It is attitudes like those expressed in this editorial that are going to push us into socialism.
“If you're not outraged at the media, you haven't been paying attention.”
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Now don't get me wrong. I'm all for capitalism. But capitalism has not existed in a pure sense in a long time; all countries subsidise some of their local markets. The fear of socialism in the sense of no private markets is imaginary, for most of those pure socialist markets are creaking along anyway, and even in those countires where socialism is the norm the leaders still live better than the cogs.
I say let the market decide what the rate is. Its actually satisfying to know that there are people who can make it to unfettered riches. I would not want to be apart of something where the rat race has no winner.
Just realise the cards our CEO's have are at the expense of others. Also, if we are upset they do not pay out or they screw up, they are human like any of us.
They are necessesary and important, like a captain of a hockey team.
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In the days when a CEO's compensation was tied directly to the success of the company they led, I would agree that they were taking a great risk and should be compensated accordingly. But in too many instances today, the CEO gets paid whether the company grows or tanks. And the payouts are usually enough to maintain the lifestyle to which the CEO has become accustomed for a considerable period of time. That's not a risk, that's a guarantee and a mighty generous one.
I'm not a fan of socialism. Individual initiative with rewards for taking risks seems like a better way to make significant advances in most fields. But it's not classism to want the rules applied equally up and down the economic stack. CEO pay as a multiple of the average worker's pay has grown tremendously over the last few years, even as the economy has stalled. More and more workers are shouldering more and more of the risk (no guaranteed pensions, larger contributions to healthcare, etc.) with no compensitory rewards if the company succeeds. The balance is missing, and I'm not sure how to establish it.
And then again, I might be wrong ...
David Webb -
I think there are definitely some great leaders and those that build companies. But lots of business is luck, it's timing, it's taking advantage or being able to take advantage, or situations. Many of our "great" CEOs are the recipients of boom times in our economy or being in an industry that's a can't miss. I'm not sure that too many of them really deserving of tremendous credit, or compensation.
It's kind of like our US Presidents. How many of them make a great impact on the country or it's direction? Very few. Quite a few have benefitted from economic booms, wars, etc. that have grown their popularity, but relatively few really have been great leaders in our country.
There's definitely some class stuff in here. I know I'm not a leader, not a "upper" class guy. That's fine, I can live with that. My complaint is that too many CEOs treat the position like the lottery, like they're the "sports star" or "movie star" of the company and their earnings should be way out of line with everyone else. And it's not just CEOs, most C-level positions have a contract that is out of line with the rest of the company.
Making more is fine, but it should be more in line with the rest of the company. Don't forget, most of these guys aren't the founders, or the owners. They're hired managers.
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"I think there are definitely some great leaders and those that build companies. But lots of business is luck, it's timing, it's taking advantage or being able to take advantage, or situations. Many of our "great" CEOs are the recipients of boom times in our economy or being in an industry that's a can't miss. I'm not sure that too many of them really deserving of tremendous credit, or compensation."
There's an old saying in sports: to win, you have to be good and lucky too. Most of us can probably think of situations we've been in where luck worked in our favor and other situations where luck was against us. Do you really want your compensation to be affected by luck? Should there be a "luck factor" that increases or reduces your salary based on someone else's perception of how fortunate you were?
"In the days when a CEO's compensation was tied directly to the success of the company they led, I would agree that they were taking a great risk and should be compensated accordingly. But in too many instances today, the CEO gets paid whether the company grows or tanks. And the payouts are usually enough to maintain the lifestyle to which the CEO has become accustomed for a considerable period of time. That's not a risk, that's a guarantee and a mighty generous one."
There's an easy answer to that: pay the CEO a minimum salary and then make the rest of their compensation in stock. That way they can only cash in if they can increase the value of the company.
"My complaint is that too many CEOs treat the position like the lottery, like they're the "sports star" or "movie star" of the company and their earnings should be way out of line with everyone else."
True, but I can say the same thing about some of my fellow IT workers who I've met over the years. There have even been articles on this website, like David Poole's article on "The Danger of Hiring Stars", that had the same observation about some of our fellow IT workers.
I reacted so strongly to this editorial because it has rather dangerous implications. It's always easy to look at "the other guy" or "the other gal" and accuse them of making too much money. I've never been a CEO. I don't know what they have to do on a daily basis to run a company. Just like most CEOs probably don't really understand what we do as DBAs. We'd rightly be upset if the CEO walked in one day and said, "Why do those DBAs make so much money? They really aren't adding much value, they just were lucky enough to be working in a time when technical innovation has really hit its stride."
“If you're not outraged at the media, you haven't been paying attention.”
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Another provocative essay, Steve - I enjoyed reading it and all the responses so far!
With regard to Jack Welch, you may be right. But I will say one thing for Neutron Jack - when he took over I was a 32-year-old engineer working for GE in NYC. Jack's Big Promise to stockholders was to turn GE from a stock that went up in value at a very slow rate - about cost of living - to a real growth stock. And in that, he succeeded very well. Of course, a part of his strategy to do that involved cutting about 1/4 or GE's worldwide work force over the first few years of his incumbency (about 100,000 people in all,) including yours truly. I was mad for the first few years, but as time wore on, I realized that like the Mafia, "it was business, not personal." All in all, I'd say the stockholders at least got their money's worth from Jack.
On the other hand, we have too many examples of CEOs who get paid millions while their company stock loses value and their company's employees lose jobs. The recent example that comes to mind in Carly Fiorina, lately of HP. No doubt she is one smart lady, but smart people often have blind spots. In Carly's case, she left (under fire) with a golden parachute of TENS OF MILLIONS of dollars, after losing BILLIONS of dollars of HP/Compaq shareholder value and causing the job loss of thousands of employees. So where is the justice? It's just not fair and downright un-American.
Not to pick on Carly, but her case is all too typical. And I think you have to blame not only these kind of CEOs, but also the Boards of these companies, who are giving away the store, on the excuse of "we have to pay megabucks to 'attract and retain' the kind of people we need....etc, etc." If I ever hear "attract and retain" again I'll........"attract and retain THIS, buddy!"
Of course, being the Microsoft shill/apologist that I am (Ok, I *admit* it!), my model of a great CEO is Bill Gates - a person who has had the leadership to not only create great stockholder value and thousands of jobs for his own company, but has significantly affected the economy in a positive way. All while drawing a salary less than that of the head of my local gas & electric utility (BillG's real money was made based on the value of Microsoft stock; his salary has always been fairly low when compared to CEOs in general.)
(BTW, for the ultimate in Microsoft apologia, see my blog post at http://therosenblog.blogspot.com/2004/10/happy-birthday-billg.html 
Best regards,
SteveR
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Don't forget, most of these guys aren't the founders, or the owners. They're hired managers.
I think that this point can not be overstated. There was an article on HP the other day that stated the new restructuring would destroy the corporate culture. Sad to say this happens in all to many companies. Most CEO's do not have capital invested in the company and are not capitalist in the true meaning of the word.
Some Japanese companies have the right idea during times of economic downturns managers take the first and biggest salary cut. A bonus structure that allows for big rewards when a company is losing money is absurd.
Directing a company carries enormous responsibility and CEO’s should be rewarded for the job they do. But salaries and bonuses have gotten way out of hand. A person who puts everything on the line to start a company deserves to reap the rewards the people who follow him as CEO’s have the responsibility of increasing the wealth of the stockholders.
This is a “Class” issue those who own stock and those who would run the company. When one side or the other begins to abuse their power adjustments need to be made.
Mike
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"BTW, for the ultimate in Microsoft apologia, see my blog post at http://therosenblog.blogspot.com/2004/10/happy-birthday-billg.html
Best regards,
SteveR "
You do have many reasons to "praise" M$ but you should also consider how some others think it got there : Micro$oft?
The world, and certainly not M$ are not Black or white
* Noel -
Thanks for the site reference, noeld!
A very interesting site - I've seen things like this before, but not so much info in one place.
He has an interesting point of view, but in many cases, I think he displays a pre-existing hostility to MS that colors his analysis. A number of points he makes and history he cites are just plain wrong, or at least arguable.
However, as I age into my senior-citizenship (I'm now 55), I realize that I have probably been too easy on MS over the years - well, after all, I've made a decent living for my family over the past 15+ off of MS products.
I do regret not having any exposure to UNIX (except an awful 2-week stint in '85 when taking nightime CS grad courses - I found out I could do the work using my Kaypro CP/M machine and switche to that - maybe I should have stuck it out with the UNIX.)
Prior to getting into IT about 1989, I was a mechanical engineer - so despite my advanced age, I have almost no background in mainframes and minicomputers, etc - just about everything I've done has been via microcomputers. Yeah, I wrote a few simple JCL jobs, mainframe reports using FOCUS, and did a lot of data retrieval from ORACLE 7.3 on Unix, but that's about it.
But you know, for all the goofyness/annoyances in Windows and MS apps, I'm sitting here at work all day long with 10 apps running plus one or two Remote Desktop sessions, and it all works pretty well, making me, my employer, and our customers good money.
Best regards,
SteveR
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As we tanget along....
It's all ones and zeros to me, I've used both Apple
(shudder) UNIX and MS for over 10+ years, were an MS shop here and some linux when dealing with the print controllers, ODBC bothers me (slow) but well thats another story, and few AS/400's come up from time to time.My best analogy though is this :
It's like being upset with standard screws being more popular than robinsons, despite the fact robinsons are a better screw.
But ultimately both work. And if you dont like it well..... design and manufacture your own.
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