CEO – Executive Team – Board (“CEB”) Alignment

CEO – Executive Team – Board (“CEB”) Alignment

CEO tenure is getting shorter and we believe a primary cause is less than optimal alignment between CEOs, Executive Team members and Corporate Boards.

Alignment Scale Exercise

  1. On a scale of 1-10 (10 is best) where would you rate the level of alignment between yourself and your direct reports? 
  2. Between yourself and your Board of Directors?
  3. You may anonymously answer these two questions via our “CEORater CEB Alignment” two-question survey (by SurveyMonkey): HERE

This exercise may be performed across various elements of the corporate operation: Executive Compensation (cash, options, RSUs, PSUs), Revenue Growth, Profit Margins/EBITDA, ROIC, Customer Sat/ Renewals etc.

Communication Is Key to Ensuring Strategic & Operational Alignment

Simply because you have stated it several times doesn’t mean people have absorbed it whatever “it” may be. Repeat “it” ad nauseam to maximize the probability that your message is received and heard correctly. Effective communication minimizes the risk of misaligned expectations between CEOs, Executive Teams and Board Members.

Alignment Is Fragile and Must Be Regularly Maintained

Similar to a v12 engine – CEB alignment must be diligently maintained – or run the risk of misalignment. If you prefer a classical music analogy consider that fractions of a second matter to symphony orchestras. Today’s large theaters with delicate acoustics require that symphony orchestra members be keenly aligned – Beethoven demands it.

How do orchestras play in sync?

CBC Music

Fiserv & First Data: Acquire in the Absence of Innovation

Fiserv & First Data: Acquire in the Absence of Innovation

Today’s announcement that Fiserv plans to acquire First Data in a $22 billion all stock deal continues the string of payments-related deals. More importantly it stresses what many know – that the incumbent payment companies are not innovation factories. Acquire in the absence of innovation – although I believe all companies should have an active M&A engine that is operated as a line of business.

Fiserv, First Data, Fidelity Info Services, Jack Henry, Bottomline Technologies and others are getting squeezed from below by innovative fintech upstarts such as Square, Stripe and Venmo (PayPal) while getting clobbered from above by Amazon, Apple, Google and Samsung and their respective payment operations.

The venture capital community ought to think extra hard about how their payments portfolio companies are going to differentiate in the fluid payments landscape.

Private equity needs to take a hard look at the incumbents to determine whether they have the chops to be relevant otherwise deal exits will be difficult. In other words, with the payments incumbents you run the risk of catching a falling knife. Thus, it makes sense for incumbent vendors to prop each other up in the meantime. Strategic-to-strategic deals ought to be the norm for the foreseeable future.

The 3 RPA Flavors

The 3 RPA Flavors

We recently published an article: “Multi-Tenant Machine Learning at Scale”. Think of this RPA (“Robotic Process Automation”) post as a follow-up piece as told with pictures. Our perspective is primarily through the lens of an investor as to how we would value each of the three RPA business models. You may access a PDF version of the slides used in this note HERE. Should you wish to receive a copy of our full RPA tools company list (22 companies), contact us at:

Our recent RPA-centric CEORater Podcast – episode 247. “Not All RPA Is Valued Equally”

Will Financial Institutions Learn to Stop Worrying and Embrace Technology?<span class="badge-status" style="background:red">Premium</span> 

Will Financial Institutions Learn to Stop Worrying and Embrace Technology?Premium 

Financial Institutions May Recover Lost Glory If They Aggressively Adopt Technology Fee Compression As Far As The Eye Can See Long gone are the days of white-collared shirts, suspenders and fat fees. The Financial Services industry is reducing headcount across the board. No pocket of the capital markets is immune. Investment Banks, Depository Institutions and…

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CES Week: Device OEMs Should Not Underestimate Consumers’ Concerns Around Data Privacy and CyberSecurity.

CES Week: Device OEMs Should Not Underestimate Consumers’ Concerns Around Data Privacy and CyberSecurity.

Lots of cool new consumer devices will be on display at CES this week. Personally I enjoy video-related technology because if a picture is worth 1,000 words, how many words is a video worth? We’re working to incorporate more video content into our messaging this year.

One message that I will be watching for coming out of CES this year will be the degree to which device OEMs promote security-related features. PII data security and data privacy is typically an afterthought at these shows.

Consumers are getting smarter about personal data security in the wake of the Equifax, Facebook and Google Plus data breaches to name several. Device OEMs need to do a better job of promoting their device security/ embedded encryption technology.

OEMs ought to specifically call out CyberSecurity features in their marketing. I believe that a digital security layer effectively promotes psychological security. This in turn may lead to increased unit sales insofar as consumers are aware of the security features.

Below we’ve linked to a study published by Cisco, which speaks to consumers’ trust level as it relates to IoT security. 53% of consumers responded that IoT “makes their life easier” while only 9% have a “high level of trust” that their data collected and shared via IoT is secure.   

Cisco’s IoT Value/Trust Paradox

The IoT Value/Trust Paradox (via Cisco)

CEORater Technology Founder CEO Index Outperformed in 2018

CEORater Technology Founder CEO Index Outperformed in 2018

The CEORater Technology Founder CEO Index posted an Unweighted Return of 8.2% for calendar 2018 vs. -2.5% for the benchmark (ticker: RYT). +10.7% outperformance.

The CEORater Technology Founder CEO Index posted a Weighted Return of 7.8% for calendar 2018 vs. -3.0% for the benchmark (ticker: S5INFT). +10.8% outperformance.

To view the individual stocks that comprise our index and the related performance tables you may access the full PDF report HERE.

Smart Innovation: Innovation as a LOB or “Innovation as a Service”<span class="badge-status" style="background:red">Premium</span> 

Smart Innovation: Innovation as a LOB or “Innovation as a Service”Premium 

Successful product innovation is a bit like capturing lightning in a bottle. It is no different from creating a hit movie or a hit song. Despite its ethereal nature innovation can be run as a line of business. Make no mistake – innovation is a volume game – at bats matter. Below are six principles…

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SS&C Technologies: Multi-Tenant Machine Learning at Scale

SS&C Technologies: Multi-Tenant Machine Learning at Scale

For the past few years I’ve poked around the machine learning (“ML”) and artificial intelligence (“AI”) space. I advised Boston-based DataRobot back in 2014 when they started to build their machine learning platform. I’ve thought about how we at CEORater may leverage ML to score CEOs and companies. Typically when we read about ML and AI it’s from the perspective of a pure-play vendor who markets and licenses its platform across multiple industries for a variety of use cases. Often the use cases we read about are focused on “power users” – people who have a PhD in Statistics or some similar quantitative background.

Recently I had the opportunity to demo SS&C’s (tkr: SSNC), new back-office, middle-office platform (“Singularity“) which has machine-learning, artificial intelligence and robotic process automation (“RPA”) at its core. This was my first opportunity to observe a fintech platform that was built from the ground-up to fully-leverage ML, AI and RPA.

From a background perspective, Asset Management firms of all flavors (small, mid-sized and large, traditional, hedge funds, private equity etc.), Fund Administrators and Insurers use a variety of SS&C products and services to value assets (equity and fixed income securities, derivatives, bank loans, private placements and real assets to name a few asset classes)/ strike an NAV, settle trades and report on asset holdings. The company’s Singularity initiative will replace siloed products with a common ML-based core layer that will have modular AI and RPA services that sit on top.

Multi-tenant machine learning is a significant competitive differentiator. Some readers pride themselves on identifying businesses that have a competitive “moat”. For non-investors a “moat” is a source of sustainable competitive differentiation. Challengers who wish to compete against companies with established moats best be prepared to completely shift the paradigm and render the moat obsolete. You’re simply not going to spend your way around, over or through a moat. Brute force won’t work. If any company ever had a moat, SS&C has one in the world of portfolio accounting systems.

SS&C’s moat is about to get significantly wider and deeper as Singularity is rolled out. This is in no small part due to the multi-tenant machine learning layer. This means that as Customer X has an experience that requires a “learning”, the benefit of that learning is enjoyed not only by Customer X but also by the other customers on the platform. This multi-tenant element to Singularity’s machine learning layer is a powerful scale differentiator primarily for three reasons:

  • Large installed customer base: SS&C has a great many customers and users – therefore more opportunities for machine-driven learnings – the benefits of which accrue to all SS&C Singularity customers.
  • Purpose-built from the ground up: SS&C has incorporated machine learning into Singularity from Day One, providing the company with a significant and sustainable advantage over competitors who may try to retrofit a third-party’s machine learning layer on top of legacy products and services. Retrofitting legacy technology simply can not be as effective from a throughput and efficiency standpoint as a new, modern-architected platform.
  • Cost prohibitive: It’s not an insignificant dollar amount that’s required to build a modern, ML/ AI/ RPA-powered Fintech platform from scratch. To replicate Singularity from a domain-expertise and technology perspective would be cost prohibitive.

VC’s would be wise to avoid trying to disrupt this market. As I see it, the only way to replicate what SS&C has built would be to acquire the company.

Narcissistic CEOs Carry Greater Legal Risk

Narcissistic CEOs Carry Greater Legal Risk

The below content is comprised of excerpts from an article previously published by the Stanford Graduate School of Business.

Charles A. O’Reilly recalls the time that his wife encountered Apple co-founder Steve Jobs in the Whole Foods market parking lot in Palo Alto. “She was walking out when he was walking out, and when he climbed in his car and pulled out, he had parked in a handicapped spot,” recounts O’Reilly, the Frank E. Buck Professor of Management at Stanford Graduate School of Business.

That same self-entitlement and willingness to ignore rules — detailed at length by Jobs biographer Walter Isaacsonwas part of what enabled Jobs to disrupt multiple industries and transform everyday existence with an innovation called the iPhone. But, O’Reilly explains, some of the same traits that we exalt in visionary business executives also are characteristics of narcissists. In that personality disorder, a sense of superiority and overconfidence are accompanied by low empathy and a tendency to take advantage of others.

“Narcissists like and want admiration,” O’Reilly explains. “There’s evidence that they seek out positions where they can demonstrate to others how great they are.”

At first glance, it might seem worth it for a company’s shareholders to tolerate a narcissistic CEO’s abusive personality, given the out-sized success that Jobs and others like him have achieved. But narcissistic CEOs’ rampant hubris also has a serious downside, O’Reilly notes. Studies indicate that they’re more likely to engage in questionable tax-avoidance schemes, to manipulate accounting data, to overpay for acquisitions, and to seek excessive compensation.

In an article published in Leadership Quarterly, O’Reilly and colleagues Bernadette Doerr and Jennifer A. Chatman of the University of California, Berkeley, show that narcissistic CEOs subject their organizations to potentially ruinous legal risks as well. Not only are they more likely to become embroiled in protracted litigation, but their personality traits make them less sensitive to objective assessments of risk. Narcissists are less willing to take advice from experts and to settle lawsuits — even when it’s likely that the company will lose.

Narcissism and Lawsuits

In one part of their work, O’Reilly and his colleagues utilized a confidential survey of employees of 32 large technology firms, in which respondents answered questions about their CEOs’ personalities, with the understanding that neither the individuals nor the firms would be identified. In addition to analyzing that data, the researchers gleaned information about major lawsuits — i.e., those in which damages might exceed 10 percent of corporate assets — from the companies’ annual reports. The result: a significant correlation between the level of CEO narcissism and the length and duration of lawsuits.

“Narcissists are less sensitive to avoidance of punishment and more sensitive to possibility that they’ll win big,” he says. “When the risk goes up, what they see is that if they win, they’re going to be heroes. Now most of us say, ‘Ah, the probability of losing is high, so I’m not going to do it.’ But the narcissist says, ‘Yes, the probability of losing is high, but look at what happens if I win!’”

Why VCs Like Big Egos

That same excessive confidence is what often helps narcissists rise to the top in the first place. “Venture capitalists like narcissists,” O’Reilly explains. “Imagine you’re a venture capitalist and you’re thinking about which of two companies to fund. Let’s say, for the sake of argument, that both have the same technology and the same market risk. But one is headed by someone who is confident that she’s going to change the world, who thinks people who disagree with her don’t know what the hell they’re talking about. The other is headed by some introverted engineer. Which are you going to pick?”

Narcissists also are hard to turn down, because they’re often skilled manipulators, adept at spinning falsehoods. “They’re often quite good at reading other people,” O’Reilly says. “And they don’t have a problem making promises they can’t keep. If I lie to you, and you find out about it, I’ll feel terrible. A narcissist doesn’t feel terrible.”

Once they’re ensconced in the C-suite, narcissists’ self-aggrandizing ways can lead to business breakthroughs, but their tendency to be control freaks can wreak havoc and make subordinates’ lives miserable. “They want control, so they create these corporate environments full of fear, where people are afraid of what the boss is going to say,” O’Reilly says. “There tends to be less collaboration.” And because narcissists are rule-breakers, that lowers the bar for integrity in the organization itself.

Unfortunately, when narcissist CEOs get their companies into trouble, they often manage to avoid consequences. “If they fail, they get a golden parachute,” O’Reilly notes. “It’s others who pay the price.”