Cult of the CEO a harmfully outdated obsession
Do CEOs really add value to a business, commensurate with their input? SkyCity Group chairman Rob Campbell recently argued against the current CEO remuneration structure and suggested the ratio between executive and worker pay has become too wide. He wrote: “The fault lies with directors. It’s something we all need to think about. Start with how we think about the job. Then how we think about the real attributes we need. And get off this escalator of rewards which are seldom really fit for purpose.”
The 1982 book In Search of Excellence by Tom Peters and Robert H. Waterman, Jr highlighted “managing by walking around” (MBWA). This was a tip for CEOs to remain in touch with the people who performed the daily tasks which ensured the business survived and prospered. It didn’t take long for someone to point out MBWA worked because it stopped the CEO interfering in the fundamentals of the business while sitting behind his desk.
In an entertaining presentation on TED, American author Dan Pink said: “There is a mismatch between what science knows and what business does.” What does science know? Pink states “for 21st century tasks, that mechanistic, reward-andpunishment approach doesn’t work and often does harm”.
He set out three building blocks for what does work. First remuneration needs to be adequate and fair, as he says, “money is off the table”. But then, what matters are: “Autonomy: the urge to direct our own lives. Mastery: the desire to get better and better at something that matters. Purpose: the yearning to do what we do in the service of something larger than ourselves.”
So, why do we still treat a CEO, as Campbell suggests, like a 19th century piece worker? The answer lies in the cult of the CEO.
CEOs have revelled in their demigod status supported by the media’s treatment of CEOs as “masters of the universe” who are singularly responsible for making companies prosper.
Professional investors Dan Rasmussen and Haonan Li used data from the Stanford Graduate School of Business — a database of around 8500 CEOs and their characteristics — and mapped these to company stock performance. In particular, they wanted to determine whether Jensen’s philosophy that CEO compensation should be tied to stock performance actually does provide better returns for investors.
Their conclusions, published in Institutional Investor, are revealing:
Company performance is not predicted by the CEO’s education background (so much for MBAs). And a track record at one company doesn’t guarantee success at a subsequent company.
These findings fly in the face of the popular view of visionary CEOs.
In the 1980s, I had occasion to study Australian businessman Alan Bond. Once a near-bankrupt, he was advised to seek a cash-generating business to service the debt which financed his growing property portfolio. He bought the Swan Brewery, at that time a virtual monopoly in Western Australia, which gave him the cash flow he needed. And a property bank.
Buying, redeveloping, and selling property at a profit was arguably the one skill Alan Bond had. He financed
Australia’s 1983 America’s Cup victory and the Bond myth snowballed.
Pursued by investment advisers and banks eager to offer him new deals he started to believe his own PR. Feted as one of Australia’s great CEOs he acquired company after company. But all at inflated prices. Within a few years, Bond Corporation collapsed.
In today’s VUCA (volatile, uncertain, complex, ambiguous) world, no individual person can be expected to have all the diverse skills and competencies needed by a business to survive and prosper. Companies need to switch focus from A-star performers to team contributions.
But, for as long as investors and boards choose not to do their reading and keep up with science — nor have the courage to apply their findings — the Cult of the CEO will continue.