leadership

The CEO is Only One Person

Posted on December 14, 2009 Comments (5)

The CEO is important but they are only one person. Rarely do they determine the success of a company. The instances where they seem to are so rare as to almost seem like just random luck. I think they can make a difference, but that they make a significant difference rarely. Steve Jobs seems to have made a huge difference to Apple, for example (and Jeffery Bezos at Amazon – note both of these examples are also founders of the company). Jason Zweig has a good article on Why a New CEO Isn’t Always a Panacea

Management is important, which is why Warren Buffett puts such stock in the character of the people who run the companies he invests in. But management isn’t nearly as important as many investors think, which is why Benjamin Graham, Mr. Buffett’s mentor, paid so little attention to it. In fact, Mr. Graham seldom bothered to meet the managers of the companies he invested in, partly because he felt they would tell him only what they wished him to hear and partly because he didn’t want his judgments of business value to be influenced by impressions of personal character.

If you took the CEOs with the best track records and brought them in to run the businesses with the worst performance, how often would those companies become more profitable? According to economist Antoinette Schoar of Massachusetts Institute of Technology’s Sloan School of Management, who has studied the effects of hundreds of management changes, the answer is roughly 60%. That isn’t much better than the flip of a coin.

“Some people,” Prof. Schoar says, “may have this almost blind belief that the manager at the top changes everything. Our results show that managers do matter, but they don’t change everything.”

Since the 1970s, several other studies have measured what happens when companies bring in new bosses. Most of the findings have been consistent: Changes in leadership account for roughly 10% of the variance in corporate profitability on average.
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a company will be much more inclined to replace the CEO after a run of bad losses—and to bring him in from a firm that has been on a hot streak. That leads to an illusion: “You change the CEO,” Dr. Kahneman says, “then performance reverts to the mean, and you attribute the improvement to the new guy.”

Furthermore, the hot profits at the new CEO’s former company are likely to cool off—by regression to the mean alone. When investors see that, they will mistakenly conclude that he is such a good boss that his old firm can’t thrive without him.

The management system is far more important than one person. Jim Press, Toyota N. American President, Moves to Chrysler (don’t expect much – Sept 2007). We are often fooled by randomness (understanding psychology lets you know this truth and factor it into your thinking): Illusions – Optical and Other, Attributing Random Results to a Special Cause, Seeing Patterns Where None Exists.

CEOs like to think they are royalty and take huge amounts of money from the company’s treasury, as a way, they hope, of providing evidence of this false belief. Don’t be fooled.

Jason Zwieg is the editor of the last few issues of the Intelligent Investor where he adds commentary on Benjamin Graham’s classic.

Posted by John Hunter
Categories: Management, Systems thinking
Tags: executive pay, Investing, leadership, management, Systems thinking

No More Executive Bonuses!

Posted on November 30, 2009 Comments (5)

Henry Mintzberg, wrote an excellent article for the Wall Street Journal today, No More Executive Bonuses!

Don’t pay any bonuses. Nothing.

This may sound extreme. But when you look at the way the compensation game is played – and the assumptions that are made by those who want to reform it – you can come to no other conclusion. The system simply can’t be fixed. Executive bonuses – especially in the form of stock and option grants—represent the most prominent form of legal corruption that has been undermining our large corporations and bringing down the global economy. Get rid of them and we will all be better off for it.
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So, again, there is but one solution: Eliminate bonuses. Period. Pay people, including the CEO, fairly. As an executive, if you want a bonus, buy the stock, like everyone else. Bet on your company for real, personally.
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All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit.

Too many large corporations today are starved for leadership – true leadership, meaning engaged leadership embedded in concerned management. And the global economy desperately needs renewed enterprise, embedded in the belief that companies are communities. Getting rid of executive bonuses, and the gambling games that accompany them, is the place to start.

It is an great article on bad pay systems that let a few top executives (and their hand picked board members) in many companies to loot the treasury of the company. I have written about this problem many times, including: CEOs Plundering Corporate Coffers – Excessive Executive Pay (2005) – Narcissistic Cadre of Senior Executives – The Best Leadership Is Good Management – Another Year of CEO’s Taking Hugely Excessive Pay – More on Obscene CEO Pay – More on Failed Executives

There are executives that don’t act like corrupt dictators looting their country, unfortunately they are less common than those that act like looters. And they all seem to have built cultures that taking respect for people is more important that feeding a few bloated egos. Akio Toyoda’s Message Shows Real Leadership, Tony Hsieh, the Zappo’s CEO – Warren Buffett – Honda has Never had Layoffs and has been Profitable Every Year

The obscene pay is not just a matter of people taking a tens of millions of dollars they don’t deserve. Companies whole management systems are distorted in ways that lead the company to risk all the other stakeholders future for the potential gain of a few senior executives.

Posted by John Hunter
Categories: Deming, Management, Performance Appraisal
Tags: bonus, commentary, ethics, executive pay, leadership, management, overpaid executives, respect for people

The Best Leadership Is Good Management

Posted on September 6, 2009 Comments (5)

The Best Leadership Is Good Management by Henry Mintzberg

Let me suggest that you should, because what we’ve been calling a financial crisis is actually one of management. Corporate America has had too much of fancy leadership disconnected from plain old management.
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How did this happen? It became fashionable some years ago to separate “leaders” from “managers”—you know, distinguishing those who “do the right things” from those who “do things right.” It sounds good. But think about how this separation works in practice. U.S. businesses now have too many leaders who are detached from the messy process of managing. So they don’t know what’s going on.
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We’re overled and undermanaged. As someone who teaches, writes, and advises about management, I hear stories about this every day: about CEOs who don’t manage so much as deem—pronouncing performance targets, for instance, that are supposed to be met by whoever is doing the real managing.
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Instead of distinguishing leaders from managers, we should encourage all managers to be leaders. And we should define “leadership” as management practiced well.

Very well said. I have never been comfortable with the attempts to separate leadership from managing. Normally the tone is that leadership is what matters and managing is just then carrying out what leaders have determined and allowed.

I understand why we focus some areas of management as in the area of leadership: it is hard to understand the whole all at once. We can make sense of things more easily by breaking them down (analysis) and speaking of aspects as within the realm of leadership is part of this. We can discuss certain traits as leadership-related. And we can discuss the difference between leadership and power based on position: so leaders within an organization separate from those with authority shown on the organizational chart. But I do not see management and leadership as separate things.

Books by Henry Mintzberg: Managing (2009) – Managers Not MBAs – The Rise and Fall of Strategic Planning

Posted by John Hunter
Categories: Management, Management Articles, Systems thinking
Tags: Books, leadership, management, management experts, Systems thinking

CEO’s Castles and Company Performance

Posted on August 8, 2009 Comments (2)

Where are the Shareholders’ Mansions? CEOs’ Home Purchases, Stock Sales, and Subsequent Company Performance by Crocker H. Liu, Arizona State University and David Yermack, New York University – Stern School of Business

We study real estate purchases by major company CEOs, compiling a database of the principal residences of nearly every top executive in the Standard & Poor’s 500 index. When a CEO buys real estate, future company performance is inversely related to the CEO’s liquidation of company shares and options for financing the transaction. We also find that, regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates. We therefore interpret large home acquisitions as signals of CEO entrenchment. Our research also provides useful insights for calibrating utility based models of executive compensation and for understanding patterns of Veblenian conspicuous consumption.
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To understand better the reasons behind the underperformance of companies whose CEOs acquire very large homesteads, we read news stories about major events affecting the firms in our sample in which a CEO acquires a property with at least 10 acres or a 10,000 square foot house. These news stories suggest parallels between the CEOs’ oversight of their personal assets and management of their companies. No less than nine of the 25 CEOs attempted major corporate acquisitions in the two years following their personal acquisitions of very large real estate,9 and seven of the 25 announced significant capital investment initiatives involving the construction or expansion of corporate facilities. An additional two firms became mired in accounting scandals shortly after their CEOs purchased mansions, and one firm saw a previously agreed merger collapse.
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Using a database of principal residences of company CEOs, we study whether these executives’ decisions about home ownership contain information useful for predicting the future path of their companies’ stock prices. We find that CEOs who acquire extremely large properties exhibit inferior ex post stock performance, a result consistent with large mansions and estates being proxies for CEO entrenchment. We also find that the method of financing a home’s acquisition is informative about future stock returns. A general pattern of CEO sales of their firms’ shares and options exists over the twelve months leading up to the date of home acquisition. However, when the CEO does not sell any shares, his stock performs significantly better ex post than the stocks of firms whose CEOs do liquidate equity to finance their houses. The retention of company shares simultaneous with a new home purchase, despite the presence of an evident personal liquidity need, appears to send a signal of commitment by a CEO to his company.

That we put in power CEO’s that see themselves as nobility with the right to build castles (and many of these CEO castles dwarf all but the most conspicuous castle built by nobility) by taking the wealth produced by others from corporate coffers is a sign of our failure to select acceptable leaders for companies.

Posted by John Hunter
Categories: Data, Economics
Tags: executive pay, leadership, management research, overpaid executives, research

Akio Toyoda’s Message Shows Real Leadership

Posted on July 26, 2009 Comments (8)

Speech by Akio Toyoda

Since the birth of Toyota, the company’s philosophy has always been to “contribute to society.”
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“Contributing to society” at Toyota means two things. First, it means, “to manufacture automobiles that meet the needs of society and enrich people’s lives.” And second, “to take root in the communities we serve by creating jobs, earning profits and paying taxes, thereby enriching the local economies where we operate.”
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Toyota has overcome many challenges during its seven decades of business. What has made this possible is the way we make our cars under our “customer first” and “genchi genbutsu” principles
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Rather than asking, “How many cars will we sell?” or, “How much money will we make by selling these cars?” we need to ask ourselves, “What kind of cars will make people happy?” as well as, “What pricing will attract them in each region?” Then we must make those cars.
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Through these processes, I would like to make Toyota’s product development and product lineup more region-focused. We will change our policy from achieving “a full lineup everywhere” to “a lineup necessary to meet the needs of each region”. We will also launch new vehicles that anticipate consumer needs and are exciting to drive.
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At the press conference in January, I talked about my desire to become “a president who is closest to the frontlines, or gemba.” I believe that the essence of management lies in the gemba, and Toyota employees play a vital role there.

Once again Toyota shows they are the type of management I want to invest in. In my last post I discussed another: Jeff Bezos at Amazon. Google management is another management system I am glad to invest in. Toyota, Amazon and Google are 3 of my 12 stocks for 10 year portfolio.

Toyota continues to show they are an exceptional company that doesn’t waver due to short term pressures. They know the management system they have in place is excellent. They always try to improve. And they react to evidence that shows they have room to improve. They then access the situation and move forward.

via: Toyoda on Toyota: A New Regime, A New Future

Continue reading →

Posted by John Hunter
Categories: Customer focus, Deming, Lean thinking, Management, Manufacturing, quote, Systems thinking, Toyota Production System (TPS)
Tags: Customer focus, Deming, Japan, leadership, management, Manufacturing, purpose, quote, Systems thinking, Toyota, Toyota Production System (TPS)

CEOs Want Health-Care Reform

Posted on May 28, 2009 Comments (5)

Decades ago Dr. Deming emphasized the deadly disease of excessive health care costs in the USA. Since then, year after year, the situation has become worse (reaching $2.2 trillion in spending in 2007 – 16.2% of GDP). During that time senior executives has put forth very little serious effort (in comparison to the huge cost) to fix this problem. Finally, in the last few years, more and more senior executives are actively moving to address the ever worsening crisis (including, Howard Schultz, CEO at Starbucks).

They seem to be realizing that hoping the problem will just fix itself is not a great strategy. Finally senior executives are realizing they need to have the government address the systemic failures. Those executives need to keep up their efforts because those seeking to retain the system that doesn’t work, because they personally benefit from it, have been doing a great job of preventing progress for decades. Until a critical mass of senior executives demand change from Washington the chance of improving the relative performance of the USA health system in comparison to other countries is very bleak (we have just been getting more expensive and less effective [relative to other countries] over time).

CEOs Secretly Want Health-Care Reform

Carl T. Camden, CEO of Kelly Services (KELYA). Managing insurance for his vast, geographically dispersed workforce of temporary workers is horrendously expensive, he complains: “My health-care costs total more than my profits.”
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But in private, “CEOs overwhelmingly want out of this business,” says Benjamin Sasse, an Assistant Secretary of Health & Human Services under President George W. Bush who’s now an assistant professor at the University of Texas at Austin. “They just do not want to be seen as more willing to dump [benefits] than their competitors are.” Sasse says many CEOs he has talked with would even pay a new tax if it got them out of the insurance business.

Posted by John Hunter
Categories: Deming, Economics, Health care
Tags: Deming, Economics, government, Health care, health care system, leadership

Posted on April 17, 2009 Comments (2)

Leadership is the act of making others effective in achieving an aim.

Leadership is not about being great yourself.

Leadership does involve more than making others effective. Leaders need to know what needs to be done, and then make others effective, based on that knowledge. As Dr. Deming said about any situation:

It is not enough to do your best; you must know what to do, and then do your best.

Leadership is not about getting a good performance appraisal. Leadership is not about making your numbers. Leadership is not about following the latest fad. Unfortunately, in my view, far too many managers fail to focus on making others better. Instead, probably largely influenced by performance appraisal mentality, they focus on making the case for why they, personally, are valuable.

Posted by John Hunter
Categories: Deming, Management, Systems thinking
Tags: curiouscat, John Hunter, leadership, management, Systems thinking

Another Year of CEO’s Taking Hugely Excessive Pay

Posted on April 6, 2009 Comments (5)

I continue to do my part to publicize the abusive CEO pay packages that the current crop of unethical CEO’s, and those sitting on corporate boards have supported (Tilting at Ludicrous CEO Pay 2008 – 2007 post on CEO pay abuses). It does seem there is more anger now at the looting these corrupt CEOs have engaged in; though far too many people seem to think the corruption is some isolated few CEO’s. The widespread failure of ethical standards by an enormous number CEO’s (those taking from corporate treasuries as though it was their own personal bank account) is the problem (not a few individuals). The looters certainly have littered their “courts” with apologists for their egregious behavior. Even with the large amounts they pay such lackeys I am surprised they find such willing apologists, in such large numbers.

2007 pay rank	Company	CEO	2008 Pay	2007 Pay	CEO % of 2008 Earnings	total employees
1	Motorola	Sanjay Jha	$104,400,000		company lost $4.2 billion	64,000
2	Oracle	Lawrence Ellison	$84,600,000	$61,200,000	1.5%	86,600
3	Walt Disney	Robert Iger	$51,100,000	$27,700,000	1.2%	150,000
4	American Express	Kenneth Chenault	$42,800,000	$50,100,000	1.6%	66,000
5	Citigroup	Vikram Pandit	$38,200,000		company lost $27.7 billion	322,800
6	Hewlett-Packard	Mark Hurd	$34,000,000	$26,000,000	7.4%	6,200
7	Calpine	Jack A. Fusco	$32,700,000		327%	2,000

This executive pay data is for 2008, from the New York Times article, Pay at the Top. Earnings and employee data for 2008 from Google Finance. I would not pay any of these guys 1% of what they were paid if I owned the company, myself.

These guys and their friends have created a culture where their looting is as accepted as the clothes the emperor is not wearing. We need to wake up and stop letting these people steal the bounty created by the employees, customers, community, suppliers, investors… They want a world where they can behave like nobility – taking whatever they want from the value created by others. And lately they have succeeded in creating such a world. They leave in their wake very weakened companies and societies.
Continue reading →

Posted by John Hunter
Categories: Economics, Management, Management Articles
Tags: bonus, commentary, economic data, ethics, executive pay, Investing, leadership, overpaid executives

Jeff Bezos Spends a Week Working in Amazon’s Kentucky Distribution Center

Posted on March 28, 2009 Comments (4)

Photo of Jeff Bezos during the 2005 O’Reilly Emerging Technology Conference by James Duncan.

Jeff Bezos, Amazon CEO, is working for a week in Amazon’s Kentucky distribution center. I hope, and based on his past, I believe, that he is going to the gemba (Genchi Genbutsu) to learn more about how Amazon operates. That would be great.

He worked on wall street and understands the fake constraints they attempt to put companies (you must focus on short term profits, you must focus on pleasing wall street analysts not customers…). He understood the importance of managing cash flow and the unimportance of short term profits. And he understands the importance of customer focus. He understands lean thinking. We need more CEO’s like him.

Amazon CEO comes to Lexington

“Thanks so much for your interest in speaking with our CEO Jeff Bezos,” said spokeswoman Patty Smith. “Unfortunately, I’m not going to be able to arrange any interviews or photos this week while he is in Lexington.

“He is there to work,” Smith said, “and, unfortunately, we are just not scheduling any interviews while he is in town.”

Local Amazon employees say Bezos is working in the warehouse with the company’s hourly employees to see what they do and hear their comments about their work. Most CEOs would benefit from spending a few days on the shop floor.

Once again his actions indicate he is the type of CEO I want to invest in.

via: Jeff Bezos Works In Kentucky Distribution Center For A Week

Posted by John Hunter
Categories: Books, Creativity, Customer focus, Deming, Lean thinking, Management, Process improvement, Psychology, quote, Respect, Systems thinking
Tags: Amazon, Bezos, gemba, leadership, management, Process improvement

More on Obscene CEO Pay

Posted on June 22, 2006 Comments (12)

graph of excessive CEO pay

Study site: CEO-worker pay imbalance grows includes the graph above.

Unfortunately this reverse robin hood (steal from the workers, stock holder, customers…) and give to the CEO tale continues. Hopefully someday soon we can at least turn the momentum in the right direction (stopping these incredibly excessive “pay” packages). Even then it will take quite a deal of reducing these ridiculous “pay” packages to reach some sense of decency. CNN article based on the report: CEO Paycheck: $42,000 a day by Jeanne Sahadi:
Continue reading →

Posted by John Hunter
Categories: Management
Tags: charts, curiouscat, Deming, ethics, executive pay, leadership, management, overpaid executives, quote

Quality, SPC and Your Career

Posted on December 24, 2005 Comments (2)

Lead To Succeed [sigh, ASQ broke the link so I removed it, it sure gets tiring how backwards some organizations till are about using the internet, June 2010] by Stephen S. Prevette:

* Succeed as a quality professional by branding yourself and providing a service or product your manager and organization deem worth paying for.
* Lead your manager “your customers” by providing the data they need in a form they can understand.

This is a great article on how to apply quality (Deming, Statistical Process Control, Six Sigma, Lean Manufacturing) ideas and move forward professionally; even when those ideas are not always shared by the organization.
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