8 ms·

The way I look at it, there are two kinds of CEOs. There are the ones that founded the company and have led the company according to their own personal vision.

• thanthen 10y ago
  would Jeff Bezos be categorized as the second class CEO you describe?
• idoh 10y ago
  Sometimes non-founder CEOs are worth it and can completely turn around the fortunes of a company. For example, Eisner for Disney, Kroc for McDonald's, Welch for GE, Jobs (the second time around), and either Ballmer or Nadela (depending on which one you pick). So I don't think the founder / non-founder distinction holds up.
  • elihu 10y ago
    That's true. I didn't mean to imply that hired CEOs aren't sometimes great leaders. I just don't think they get the same respect and admiration that founder CEOs do, and on average I think they tend to have somewhat different goals and incentives than founder CEOs.
  • rdgthree 10y ago
    Ballmer ruined the company, not turned it around. He took something amazing and tanked it. Nadella is the example here.
    • chickenbane 10y ago
      This is often stated, but when you actually look at his accomplishments (from Wikipedia): > Under Ballmer's tenure as CEO, Microsoft's annual revenue surged from $25 billion to $70 billion, while its net income increased 215 percent to $23 billion, and its gross profit of 75 cents on every dollar in sales is double that of Google or IBM. ... > Ballmer also built half-a-dozen new businesses such as the data centers division and the Xbox entertainment and devices division ($8.9 billion) (which has prevented the Sony PlayStation and other gaming consoles from undermining Windows), and oversaw the acquisition of Skype. Ballmer also constructed the company's $20 billion Enterprise Business, consisting of new products and services such as Exchange, Windows Server, SQL Server, SharePoint, System Center, and Dynamics CRM, each of which initially faced an uphill battle for acceptance but have emerged as leading or dominant in each category. It doesn't exactly sound like tanking.
      • mbreese 10y ago
        MSFT Market cap when Ballmer took over: $601B MSFT Market cap when Ballmer announced he was leaving: $270B That was the problem... even if the initial valuation was ridiculously inflated by the early tech bubble, post-crash, the stock was pretty stagnant throughout his tenure as CEO. http://fortune.com/2013/08/23/steve-ballmers-market-cap-problem/ http://fortune.com/2013/08/23/steve-ballmers-market-cap-prob...
• ktRolster 10y ago
  The way I look at it, a good CEO can save a company millions (or even billions if it's a large company like Sony) by negotiating better contracts. That is a skill some CEOs have. Now, if you're going to hire a CEO with that skill, do you think he's not going to also negotiate a good contract for himself? He has that skill.
  • aaroninsf 10y ago
    There is an unvoiced logic here that I question. The contention is that a CEO saves $x million, and thereby 'earns' some [preposterous] fraction thereof, as a finders' fee. This is a similar logic to a broker taking a percentage of a large market transaction. That part I disagree with and think many upset about CEO compensation (or market speculators/industry windfalls) is that this is earning in any meaningful way. In particular, the presumption that there is some intrinsic relationship between the compensation earned and the numbers transacted seems baseless. The CEO and market trader alike do not provide the value; they are simply in a desk where the numbers are large. The reason a CEO can 'save millions or make billions' is merely because they have been seated where their quotidian decisions (however talented) have disproportionate leverage and consequence. That is not a result of ability or skill, except in the unconvincing sense that they had the skill to weasel (my word) their way into that desk, nominally on personal merit, in fact, usually by virtue of connection and political merit. That sort of 'earning' does not pass the smell test for most of us who have not lucked into those seats, and never shall.
    • nnfy 10y ago
      So management in general doesn't deserve more than $X? CEOs do much more than simply broker deals, and the rest is explained by basic market principles-good CEOs are scarce, and therefore well compensated.
      • learc83 10y ago
        There's much more to it than that. Executive compensation doesn't correlate well to company performance. Companies are historically horrible determining what makes a good CEO. Other potential explanations for inflated CEO pay (relative to previous decades) include executive compensation boards staffed by executives in similar positions from other companies, and boards that want to keep up appearances by having a highly paid CEO.
• abtinf 10y ago
  The caricature of investors as "the wealthy" is not connected to reality. If you are interested in having a retirement, you have a stake in the game - even if your entire plan is to rely on social security, someone has to make the money that will be taken and given to you. If you have an interest in a high standard of living or low cost of living, efficient investment decisions are vital to you. When you hire someone, whether to mow your lawn or run your fortune 500 company, you want their work effort to be aligned with you objectives. Ideally, every employee you hire is aligned with your interest, but that is impossible. This is a hard problem with a huge body of research behind it. If you would like to learn more, look up the "agency problem". With regard to the ability to easily change investments - that is simply not true for the massive companies you are talking about. As an individual investor, you can shift capital around easily because your decisions have a negligible impact on the market as a whole. However, over 70% of the stock market is held by institutional investors, whose decisions significantly impact market prices. Stock prices reflect the long term prospects of a company. Shareholders are merciless in punishing companies that optimize for the short term over the long term.
  • kobeya 10y ago
    Investors in early-stage, non-public companies is pretty much limited to "the wealthy" in the U.S. due to regulatory restrictions.
    • robotresearcher 10y ago
      Parent said "When you hire someone [to] run your fortune 500 company...".
    • ryankennedyio 10y ago
      For good reason, crowdfunding is really quite terrible (not the kickstarter kind): https://www.bloomberg.com/news/articles/2016-11-07/you-too-can-invest-in-a-startup-likely-to-go-bust https://www.bloomberg.com/news/articles/2016-11-07/you-too-c...
      • bshanks 10y ago
• ChuckMcM 10y ago
  I think that is a really excellent observation, however it seems to neglect to take into account what the CEO's actual job entails. It doesn't help that the 'CEO' job changes as the company size and mission changes as well. It is an interesting exercise to take a moment and write down what you envision would fill the time of a CEO at the office over the course of a month. What problems would arise? Who would ask for their time? When they were investing time what would it be toward? Etc. Ask yourself, what does the CEO actually do? And given what they do what determines how difficult it is to do that? And finally how would you evaluate their performance relative to the requirements for the job? The above analysis casts the CEO as the 'decider.' This defines the CEO as the person who makes the decisions that could not be made by people that report to them. I have had the opportunity to ask some CEOs how they spend their time and deciding critical questions is always part of the answer, but it is usually a very small part, typically less than 20% of their time. I have also noticed it confuses the heck out of people who are CEOs of small companies and this is a big part of their time, and their company grows and it becomes less and less of their time (or worse they continue to try to make decisions that would be better off made by their staff) and they panic because they have no idea what their job is any more. In a wider context at a larger company, the CEOs role moves away from decisions and into choices. Which path, of all the paths available, does the company proceed along. Those choices, and navigating those choices, has an inordinate effect on the long term success of the organization. Tom Mendoza, who was the VP of Sales at NetApp and later President, used to turn everything into a sports analogy. It was so common that people would sometimes jokingly ask "How can I explain this to Tom in terms of sports?" But the reality is that sports can have a lot in common with business at the higher levels. When you look at the performance of a football team like the San Francisco 49ers across coaches and players, it is startlingly clear that the coach has a huge impact on the overall success of the team. But unlike sports teams, which get a sort of 'natural reset' each season, companies do not. The CEO position is perhaps the single largest point of leverage on the future success of a company. And while it is impossible to know when you hire a CEO if they will have a positive, neutral, or negative effect on the company, it is clear after a while how it is going. And having it be that important to hire a good one, ones that have a 'proven' track record are going to be able to command a much better salary than one who doesn't. Not because their decisions are more employee focused or shareholder focused, but because their decisions are the ones that are good for the success of the company as a whole. And then how do those decisions effect the company? Well in three obvious ways; they affect the effectiveness of the company at getting things done (its productivity), they affect the number of markets in which the company can complete, or they affect the company's focus. What is worse, in the midst of all these company critical factors they are trying to balance, they will have directors and VPs working for them who are actively sabotaging other directors and VPs efforts in an attempt to 'get ahead.' It would be like playing chess where sometimes a pawn just decides on its own to capture the piece it can see to make itself look more important to the other pieces on the board with no appreciation for where those other pieces are situated or what part they are playing in the current board strategy. The bottom line is that there is a spectrum of 'CEO' from 'CEO' of a 10 person startup (which is indistinguishable from a line manager) and 'CEO' of a 100 person, 1K person, 10k person, and 100k person companies. Each order of magnitude changes the role in many ways. The one thing they all have in common is that they can destroy the company they are in charge of if they screw up or simply aren't up to the task.
• jgamman 10y ago
  Selectorate theory (the rules for rulers) would imply the second type of CEO (hired) is there to distribute treasure to the major stakeholders and not primarily to grow/invest in the business aka financial strip mining.
  • JumpCrisscross 10y ago
    You're ignoring that the treasure is dynamic. If I can have 50% of $1 today or 20% of $10 tomorrow, a leader who can produce the second outcome is preferable to one who'll simply distribute à la the first.
• gavinpc 10y ago
  Without disputing any of your comment, I find it interesting that "the customer" (or what we might call the "end user") is never mentioned in this graph of stakeholders and their competing concerns. Neither customers nor the serving of any sustainable purpose are mentioned in TFA either, although outside investors are added to the mix. The ideal business model would be (I should say, is) to make money without doing any particular thing at all. Indeed, last I heard, that is a growth sector.
• killjoywashere 10y ago
  You need to read The Dictator's Handbook.
• jsudhams 10y ago
  >> pump up the stock value now even if they're bad for the company in the long run I agree this was the main reason for Dell to become private allowing them to concentrate on long term and i think they have done better as private company than public earlier. I wonder if it is possible only have retail investor as shareholder who does not care much about strategy as long as they get dividend and stock price kind of keeps a phase rather than always going up.
• throwaway91111 10y ago
  It seems the second class is more valuable. Anyone can build a business; making it last is the hard part.