Bad Company: the Cult of the CEO by Gideon Haigh
Melbourne: Black Inc, 2003 ISBN 1863953558
Gideon Haigh, that doyen of cricket writing, is a working journalist who started out writing about business, with quite a few books about that subject to his name. Bad Company, originally written as the tenth Quarterly Essay, is a look at the rise and rise of the CEO as the new hero of the business world. Written in 2003, it is an interesting history and at the same time a historical snapshot of how corporations dealt with the problem of running themselves.
Written in the aftermath of the Enron and HIH disasters, Haigh looks successively at the development of the concept of the CEO, the (relatively recent) rise in importance of the position in the corporate and business world, and how we as a society got into the position where the remuneration for these people has reached stratospheric heights. He also suggests some ideas for remediation.
Haigh reminds us that the idea of a salaried manager for a company came out of the expansion of the American railway network, where companies soon became far too big to be successfully run and managed by their owners, who often were numberless shareholders in any case. He then takes us through Rockerfeller and Ford, the latter of whom famously didn't believe in management at all. Alfred Sloan of GM was probably the first CEO of the kind that we would recognise today, although he was famously reclusive and certainly didn't like appearing in the public eye.
Ironically, government intervention to curtail the power of conglomerates, and to curtail the pay packets of CEOs, have lead to some perverse outcomes. As the power of conglomerates was crushed, the power of the single corporation rose. As the ability to pay CEOs high direct salaries was curtailed, this led to the allocation of stock options in lieu of direct money. The theory was that as the CEOs now had a stake in the success of the corporation they would manage more effectively. In fact, options encourage CEOs to chase quick wins at the expense of longer term strategy. Haigh suggests that re-designing such options to focus on dividends may ease some of these unintended outcomes.
And what of the CEOs themselves? Far from being geniuses or superstars, they are quite ordinary, although with a capacity to work long hours. There are lots of studies that suggest that CEOs have very little influence on the success (or failure) of corporations. In fact Haigh suggests it is the people in the lower ranks of the organizations that often contribute to the culture that will determine success.
As someone who intermittently follows the business news in my local paper, I think that perhaps the investing populace has caught up with Haigh's thesis that a "rockstar" CEO is not a requirement for business success, even though Boardrooms still often don't do their jobs properly (Haigh makes a fascinating suggestion that the best boardmembers may well be retired middle-managers, who have a mix of real experience in the company and the industry as well).
This is not a bad read - a quick primer in how we got to where we were in the early 2000s, and how that time echoes into today.
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