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An interesting debate i’ve been having for a while is trying to understand if employees (i.e CEO’s) ever run a company as well as owners (good, astute owners). Why even ask? Well I think our current financial ‘crisis’ is directly attributable to how we operate our companies. I take exception to the finger pointing that has been directed at the CEO’s of some of the failed companies. Those guys do carry some of the blame, but what isn’t acknowledged is that they are employees. Yip recruited and incented to do stuff by company boards or executives. While not in these words, i am willing to bet that up the run up to the big crash, these very same CEO’s were having conversations with their EMPLOYERS that went something like “ how are you going to deliver more growth to keep the share price up” . Which would have created some debate where the said CEO’s may or may not have voiced their concerns over the companies exposure (risk) or the cost of doing such short term initiatives. End result is that the long term viability of the businesses were jeopardised. Back to the debate, Its my belief that private companies can make better long term decisions because they have to deal with the long term impacts AND don’t have to worry about short term bonuses and the counter intuitive behaviour it drives. Rumour has it that Rupert Murdoch is the supreme example of this (love or hate him). Case in point, the New York paper price wars. His companies took the position that they needed to increase their readership, so they cut slashed the price. The resulting years of financial loss were offset against that growth. The questions are, could an employed CEO 1) even make that decision 2) achieved their bonuses in doing so? Logically the answer is no. Another Murdoch legend (which i cannot source) goes something like this. He wanted to put the prices up for his paper in a specific location. His competitor didn’t follow suite, so he identified those geographies where his competitor had a large market share advantage and gave his paper away free until the competitor took his hint & put their prices up in line with him. Again could a CEO who is an employee make these kind of plays? I don’t believe so in the majority of cases. Our CEO’s have bonuses and employment tenure (which effectively drive medium term thinking at best) I’m not a CEO, and i’m not saying that they turn up to work to deliver a bad outcome, but it does seem to me that current practices and behaviours are counter intuitive. I know of at least one ex CEO who reads this blog, I'd love to hear his perspective.
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