Tag: Corporate Governance

Predicting CEO Actions and Financial Outcomes Based On CEO Personality<span class="badge-status" style="background:red">Premium</span> 

Predicting CEO Actions and Financial Outcomes Based On CEO PersonalityPremium 

Could we have predicted that Elon Musk’s restlessness would have led to his founding of (SpaceX) even though he more than had his hands full with Tesla? How about his latest company – “The Boring Company” – could its founding have been predicted? The answer is “maybe”. Are we surprised by Musk’s emotionless approach to…

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Boards: Perform Due Diligence on CEO Candidates Upfront. GE Is Still Cleaning Up Its Mess.<span class="badge-status" style="background:red">Premium</span> 

Boards: Perform Due Diligence on CEO Candidates Upfront. GE Is Still Cleaning Up Its Mess.Premium 

I’m puzzled by the mess that is GE. The Company recently removed former CEO John Flannery after only 14 months at the helm only to replace him with a Board member (Larry Culp). I was a fan of Flannery’s effort to decentralize operations and to divest non-strategic businesses. However, I did not agree with all…

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CEOs Must Be Intellectually Engaged to Remain in the Chair<span class="badge-status" style="background:red">Premium</span> 

CEOs Must Be Intellectually Engaged to Remain in the ChairPremium 

“CEO Tenure Is Getting Shorter..” the Wall Street Journal writes. Research indicates that the optimal tenure is 4.8 years. Median CEO tenure at large cap companies was five years in 2017, one year less than the median in 2013 (Equilar). To quote the article, “Xueming Luo, professor at Temple University’s Fox School of Business and…

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Successful CEOs Share These Six Attributes (hint: Communication is Key)

Successful CEOs Share These Six Attributes (hint: Communication is Key)

Successful CEOs possess each of the attributes described below. This is an unscientific analysis based upon my prior experience covering and acquiring companies (equity research analyst; M&A executive) as well as my current role as founder of CEORater.
It is important to recognize that while these attributes are qualitative in nature they do impact the bottom-line.

1.) Communication:

Effective communication is the most important attribute for CEOs to embody. Our lead photo is that of Steve Jobs, the Great Communicator.  

  • Great CEOs are great communicators: Great CEOs communicate effectively to shareholders, customers and most importantly – employees!
  • Get your reps in: Jack Welch used to say that when he got sick of hearing himself repeat a particular message he knew that message was starting to take root with employees. Rocky Marciano knew the best way to maintain his edge on fight night was hard sparring during training camp.
  • Coach the coaches: Want a force multiplier effect in your organization? Coach your direct reports.

2.) Accountability:

Great CEOs hold themselves and direct reports (and by proxy all employees) accountable. Do not confuse accountability with intolerance for it is important to encourage smart risk.  

Don’t shoot to kill: Sales person misses sales target. OK fine, no variable compensation reward for the period. What behavior will change as a result?

  • Is there a communication breakdown in the sales process?
  • Where is the pipeline weak?
  • How are we engaging with customers and subsequently ingesting and disseminating that sales intelligence? Is that information circulated not only across the Sales organization but with Product Management?

If behavior changes for the better – i.e. improved communication – the miss may have been worth it.

3.) Employees First:

The tried and true principle of taking care of your own first. In return employees will take care of customers. The benefits trickle down to shareholders. 

Past and present CEOs that put employees first:

  • Sam Walton, Walmart;
  • Aron Ain, Kronos;
  • Jack Welch, GE;
  • Tony Hsieh, Zappos;
  • Bernie Marcus and Arthur Blank, Home Depot;
  • Reed Hastings, Netflix;
  • Scott Scherr, Ultimate Software 

Don’t confuse “taking care” of employees with free lunch, coffee bars and foosball tables. Those trivial items may help at the margin, but at the end of the day employees want to be recognized and rewarded for successful missions – both large and small.

4.) Intellectual Curiosity:

Intellectual Curiosity is an attribute we have paid increasing attention to as of late as we began our CEO Personality Analytics effort this May (“Personality Analytics: Technology CEOs Analyzed“)

Our experience is that intellectually curious CEOs are never satisfied (that’s not to say they are perpetually dissatisfied). They are relentless about “what comes next?” and “what aren’t we doing that we ought to be?”

  • Intellectually curious CEOs are more likely to solicit feedback from direct reports.
  • They are motivated to find the truth, not to have their opinions validated.
  • Intellectually curious CEOs are more likely to consider and deploy creative strategies and tactics to deliver customer value.
  • They view obstacles as opportunities rather than impediments.
  • Intellectually curious CEOs create “adaptable” cultures capable of flexing their business model as customer dynamics and competitive landscapes change.

5.) Long-Term-Oriented:

We consider long-term to mean 10 years or more. Similar to the “time value of money” principle where investment decisions made today can have an enormous impact in the out years, capital allocation decisions made today can impact a given company’s competitive positioning and operations in significant and unimaginable ways 10-20 years in the future.

  • Amazon (AMZN): As recently as a few short years ago analysts beat up Amazon for re-investing profits when AMZN appeared to be close to achieving operating profit break-even. Those investments made over a 24-year period (primarily in physical distribution) have paid off handsomely, enabling Amazon to offer same-day delivery service for a mind-boggling number of products. A competitive “moat” if I’ve ever seen one.
  • SS&C Technologies (SSNC): Founder, CEO Bill Stone and his team have taken a measured, strategic approach over the years to augmenting the “core” business with a series of reasonably valued strategic acquisitions. This strategic approach has enabled the company to build the deepest and broadest product and services portfolio across the financial services industry in non-discretionary product areas such as portfolio accounting. Early in the company’s life-cycle certain acquisitions may have seemed somewhat inconsequential. However, 30-plus years and $13 Billion of market cap later the company is the leading Financial Technology provider with solutions that address back, middle and front office workflows across the Financial Services industry.

6.) Trustworthy:

No love without trust. One could also use the word “transparent” to describe a CEO that exhibits consistent behavior whether engaging with a senior executive, a front-line staffer or a customer. We opted for the word “trustworthy” because at the end of the day employees typically describe their CEO as someone they “trust” or don’t trust.

Why is it important for CEOs to be trustworthy? If employees don’t believe you “have their back” – they are less likely to break theirs – for you or for the company.

Communication Breakdown

 

 

Centralized Operating Models Don’t Work. Even for The Narcissist CEO.<span class="badge-status" style="background:red">Premium</span> 

Centralized Operating Models Don’t Work. Even for The Narcissist CEO.Premium 

To Centralize is to Oppress This article focuses on centralized business models and why they don’t work. Ben is our anti-hero who learns this lesson the hard way. We Detest Centralized Business Models for Several Reasons: 1.) The centralized model assumes that corporate headquarters knows best. Could there be a more arrogant assumption? For any…

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7 Rules for Keeping Activist Investors Away<span class="badge-status" style="background:red">Premium</span> 

7 Rules for Keeping Activist Investors AwayPremium 

The following 7 rules apply to public companies across a variety of industries – particularly to Enterprise Software, FinTech and Information Services companies. 1.) Make Your Numbers 2.) Regular, Transparent Investor Communication 3.) Drive Expanding Operating/EBITDA Margins 4.) Don’t Stockpile Cash 5.) Control Waste 6.) Use Debt as a Tax Shield 7.) Board Composition –…

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Steve Jobs vs. Tim Cook – Innovator vs. Operator – It’s In Their DNA

Steve Jobs vs. Tim Cook – Innovator vs. Operator – It’s In Their DNA

Personality Analytics Holds the Key as to Why Apple Was More Innovative Under Steve Jobs than Tim Cook

Apple has lost its creative mojo under Tim Cook. Incremental product enhancements have become the norm, replacing a time when revolutionary new products, space age design and landmark advertising was the standard. What changed? Look no further than the CEO chair. Apple founder, CEO and creative genius Steve Jobs prematurely passed away in October 2011. Jobs’ hand-picked successor, Tim Cook, is by experience an operator with a background steeped in supply chain experience. Cook could not be more different from Jobs from a personality standpoint (see our table below).

The importance of assessing a CEO’s personality when conducting a CEO selection process (corporate boards, executive recruiters), or investment due diligence process can not be overstated. This is especially true of industry verticals marked by rapid change where the cost of having an ineffective CEO can be extremely high. It is not so rare to find a situation where a CEO, Board and institutional investor base were slow to realize that a given company’s customers were migrating elsewhere due to product obsolescence or other factors that ought to have been recognized. Few participants want to acknowledge this type of deterioration early or mid-cycle and only do so when it’s too late.

CEOs that create “adaptable” corporate cultures are less likely to lead companies that suffer irreparable declines due to product under-investment or other negligent factors. Adaptable cultures are less likely to be caught off guard and instead lead market change.

Corporate cultures are often an extension of the CEO’s personality. Yes, CEOs influence culture and corporate strategy even in mega-cap companies. Look no further than Microsoft (MSFT) during Steve Ballmer’s tenure as compared to Satya Nadella‘s time as CEO. MSFT’s product & services strategy is dramatically different as is the firm’s approach to competing and partnering with other technology companies.

We highly value the personality trait “openness” in large part because of its relationship to adaptable cultures.  Steve Jobs and Tim Cook score similarly on the openness scale – 92nd percentile and 94th percentile respectively. However, looking at the personality sub-traits under openness, Jobs scores far higher than Cook in the two most creative personality sub-traits: “artistic interests” and “imagination”.

Given that Cook lags in these areas, one would need to get comfortable with the idea that a non-creative personality like his (32nd percentile and 14th percentile as detailed below) is capable of generating massive creative output from Apple’s 120,000-plus employees. This is asking too much of Tim Cook in our view.  What doesn’t come naturally doesn’t come easily and may not come at all.

Our May 2018 CEO personality analytics research piece may be found here: Personality Analytics: Technology CEOs Analyzed

source: CEORater; IBM

 

 

 

 

 

Our recent podcast on the subject: