Let’s talk about transition to robot chief executives
JACK MA, the chief executive of the Chinese Internet giant Alibaba, has said that in 30 years even chief executive jobs would be outsourced to robots. My question is: What in the world would make us wait so long for that transition to occur?
Most chief executives are high-paid administrators.
As far as I am aware, Ma’s outburst earlier this month is the first that has seen robots as a threat to the jobs of the corporate elite. But of course, most of their jobs are as outsourceable as everybody else’s.
The incentive is greater too. The direct saving in salary costs, expenses and stock options costs from replacing a human chief executive can easily run in the tens of millions of dollars.
Outsource chief executives – not entrepreneurs. True, entrepreneurs have jobs that are not robotisable. They develop new products and expand their businesses into new areas through new and previously unimagined technologies. They are also expert at getting a great deal of result from very few resources, as well at reacting nimbly to entirely new and unexpected shocks.
One cannot imagine machines/robots becoming good at these tasks. It is likely that even in 50 years there will be areas of business decision-making that are entirely unamenable to robot penetration.
Most chief executives are not true entrepreneurs. They operate within relatively stable environments, in some cases highly competitive, in other cases much less so through sweetheart deals with their boards.
Symbols, not achievers
Chief executives’ competitive situations do not change all that rapidly. For example, the threat from Internet shopping that is now hollowing out many bricks-and-mortar retailers has been developing for two decades, since the foundation of Amazon in 1994.
Most chief executives generally have an extraordinarily well-paid job that is largely routine. Human chief executives have amassed an especially dire track record in the last two decades. Whereas their compensation has soared far faster than overall US output, productivity growth in US businesses has notably lagged, indicating their failure to invest optimally.
Ending the M&A charade
Most of the frantic round of mergers and acquisitions that for many chief executives constitutes activity are either obvious or futile. Mergers to cut costs in an area of declining activity are the former, as are “bolt-on” mergers to increase a company’s penetration in an attractive market.
On the other hand, most mergers by which a company expands into an entirely new area are futile (because the company has no special expertise in the new area and so achieves sub-market returns there).
The same is true for mergers designed to bulk up the company’s size and thereby increase the compensation of the chief executive. This entire scheme is just readymade to have someone, the chief executive and his cronies at the top, cash out like a king – and assign large fees to the handlers and arrangers.
Robot chief executives would readily be able to recognise the obvious mergers and reject the futile ones. The process of merger analysis required is only moderately complex.
This brings out an important advantage of robot chief executives – their lack of conflicts of interest. By law, their programming would be forced to reflect the interests of shareholders as first priority, and to forbid them from breaking all the laws to which a modern corporation is subject.
Robots play by the rules
Robot chief executives would not be able to shade their observance of laws in the belief that “everybody does it” or that they would never get caught.
In fact, robot chief executives, not being human, would not be paid. They would simply cost what they cost. Their programming, which would be determined by corporate law first principles, would give them guidelines for resolving all the contentious points that cross a chief executive’s desk.
Better yet, robot chief executives would not form close emotional bonds with people. They would hence arbitrate disputes between subordinates with monotonous fairness.
Production, finance and control would be natural to them, and they would be little worse at HR than the average human chief executive, with his tendency to play favourites.
The robot chief executives’ weakest point would probably be marketing, where they would have little clue what would appeal to the average consumer.
However, this could be solved by a good human chief marketing officer, and would in any case be offset by robot chief executives’ ability in industrial marketing, where they would often be selling to other robots.
Better efficiency
Robot chief executives would provide shareholders with better results than human chief executives for 95 percent of companies, 95 percent of the time.
Like self-driving cars, robot chief executives would never get drunk, criminal, greedy or prejudiced.
Also, as in self-driving cars, in extreme cases they would fail catastrophically, but those cases would be fewer in number than for a human chief executive.
The robot chief executive would work a 168-hour week or close to it. Like human chief executives, it would waste a lot of time in meetings and conference calls.
However, it would have additional reserves of time available that a human chief executive does not have (because of his physical limitations, need for a social life and family, etc).
It would be possible to mitigate further the risks of a robot chief executive by using a human non-executive chairperson.
The chairperson’s job would be to spot opportunities and risks for the company that were not obvious, and to identify them sufficiently forcefully that the robot chief executive took them into its calculations.
Sharp strategic turn
Companies that needed to make a sharp strategic turn would be able to do so. The non-executive chairperson’s workload would be limited, perhaps to two days a week.
The ideal non-executive chairperson would be older, perhaps retired from his full-time job, but with experience of a wide range of industries.
The 1960s British ideal of a merchant banker chairperson would work very well if the chief executive was a robot (not that merchant bankers exist any longer).
Conversely, a retired human chief executive as chairperson of the same company would be too limited in breadth of experience, and far too governed by the assumptions of the company’s industry, many of which would have become outdated by the switch to a robot chief executive.
The technology is not quite ready yet for a robot chief executive to be appointed to head a major public company.
Cost advantage
While each unit potentially commands an initial sale price of several million dollars, which is comparable to a human chief executive’s salary and benefits, it’s a one-off cost – and not an annually recurring one.
The early adopters would probably be those companies with relatively simple operations that have suffered from human chief executives ineptitude in recent years.
In many cases, once a robot chief executive has been designed and bench tested, shareholders of companies that have suffered from inept management should feel that it could not do any worse than the humans under which their wealth has been eroded and opportunities missed, and would very likely do better.
The benefits of chief executive robotisation to shareholders are just too great.