CEOs: Leaders versus Decision Makers

Leadership is a favorite topic of Business Schools and Military Schools.

This combination should be worrisome. At least it is a reminder that while leadership is a skill, it is certainly a skill that can be used for good, for evil, or for foolishness.

My own personal predisposition is to resist leadership, although I have known and liked plenty of charming people who appropriately view themselves as leaders.

A notion that I find more sympathetic is that of decision maker.

A person who makes good decisions, but who lacks leadership skills may, or may not, be a great success and a positive force for those he engages.

On the other hand, a person who makes faulty decisions and has the leadership skills that get people to follow him --- well, such a guy just creates a mess --- or sometimes, a tragedy.

I plan to collect on this page some of the items that I have found in the press that deal with this distinction between leaders and decision makers. For the moment, there is no clear organization, and there is some commingling of items more relevant to a rant on CEO compensation. Still, over time the page should evolve into an honest essay.

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Can They Say It with a Straight Face?

"The men and women of The Coca-Cola Company have a passion for what they do that ignites inspiration every day. In this spirit, they have driven significant change through every aspect of the organization." E. Neville Isdell ,Chairman and Chief Executive Officer, Annual Report 2006.

Let's see, here. You mean to say that they have passion that ignites their spirit to sell fizzy (and non-fizzy) water?

Also, while we wait for Roger Moore to line up Isdell for a new documentary, how about taking a moment to read an annual report that is not embarrassing --- and which even makes sense ?

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The Good Company - Bad Stock Paradigm

"Probably the most vivid example of the good company-bad stock paradigm was provided by the popular 1982 book In Search of Excellence, by management guru Tom Peters. He identified numerous "excellent" companies using several objective criteria. Several years later, Michelle Clayman, a finance academic from Oklahoma State University, examined the stock market performance of these companies and compared it with a matched group of "unexcellent" companies using the same criteria. For the five-year period following the book's publication, the unexcellent companies outperformed the excellent companies by an amazing 11% per year. As you might expect, the unexcellent companies were considerably cheaper than the excellent companies by P/E, P/B, and dividend criteria. People naturally assume that good companies are good stocks, when the opposite is true most of the time. Psychologists refer to this sort of syllogistic error as "representativeness."

--- William Bernstein. The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk. (McGraw-Hill, 2000). Page 118. [Note: William is not Peter. William is a full-time neurologist and part-time financial commentator. Peter is a devoted financial historian and prolific journalist.]

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CEO Compensation... What DOES it mean?

"In 1970, notes Business Week, the CEOs of the 500 top U.S. companies listed in the S&P Index took home 28 times more compensation than average American workers. These same executives are now averaging, according to the latest tally, 369 times the pay of average workers. "

"If average workers today were still earning 1/28th of what S&P 500 execs are making, their annual pay would sit at $374,800."

This quote from the amorphous web may have a message for some people, but personally I can't really sort it out.

I don't go for the 'capitalism run amuck' view --- after all, at this stage of life I am perhaps 1/2 an owner of the SP500 and 1/2 a salaried employee. As a consequence, I pay the CEOs' salaries.

My only question is whether I am getting my money's worth ---- and frankly I can't think of an analytical model that will tell me. If you want to work on this puzzle with me, let me know. It think it deserves an honest analytical look. There is a model buried here somewhere.

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Compensation for What?

"Raymond T. Dalio, head of Bridgewater Associates, which has more than $30 billion in hedge fund assets, for example, took home $350 million last year even though his flagship Pure Alpha Strategy fund posted a net return of just 3.4 percent for the second consecutive year." (NYT)

This really is pretty strange. He underperfomed CASH and he collected 350M. Can I play? I like the follow up. It was a breath of fresh reality.

“I think one of the significant issues of this business that we are all struggling with is that there is an inverse correlation between compensation and drive,” said Mark W. Yusko, president of Morgan Creek Capital Management, an investment advisory firm. “In many cases the incredible wealth that is created by this incentive compensation structure has a propensity to dull the senses and dull the drive.”

Having your drive dulled by a few hundred million is pretty reasonable, don't you think? After all, we live in a world where at least a quarter of the population lives on less than five dollars a day per person.

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Personal Success and Relative Advantage


"How would you advise them [the aspiring CUNY students in the audience] to be successful—to be, perhaps, the next Roger Hertog?"

Roger Hertog:

"I don't think it’s hard. I think it simply comes down to people’s inner drive to find meaning and personal growth in their lives. There’s nothing more significant than your God-given talents. After that, it’s working hard and trying to figure out where you have a comparative advantage: what do you do better than most people? Not necessarily the best—but better."

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Sub-prime Lender Hits Tank Splashes Up Prisoner's Dilemma

"New Century's situation is not unlike the 'Prisoners Dilemma.' If the majority of lenders stand pat, they can mitigate losses. However, if they believe that other lenders will pull their lines, those first to act will be best served," Jefferies analysts told clients.

When I first read this I thought "Cool. A nice example for class!" Later, I had doubts. The messy issue is that New Century's creditors are quite unlike the classic prisoners with a dilemma.

Not only can the creditors talk to each other, there are legal constraints that force them into mutual disclosures.

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"Jumped the Shark"

For those of you who are as media-clueless as I am, it might be amusing to learn that the expression "Jumped the Shark" roughly connotes "passed its prime."

Specifically, t he phrase has come to be used to describe the point at which TV series heads down hill.

It originates from "Happy Days" where in a hope to re-energize the show the producers put Fonzie on water skis and had him jump over a shark.

The lack of even a sit-com quality connection between Fonzie and sharks plus the rank implausibility of the stunt made it clear that the "bloom was off the rose."


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