The Role of the Modern CEO
Today's second topic is a review of a new book about Jack Welch – 'The Man Who Broke Capitalism.'
Word Count: About 1,300, approximate reading time 5 to 7 minutes. Please share your thoughts in the comments. Please be kind and subscribe to my newsletter.
The train wreck that is Elon Musk's takeover of Twitter is the subject of hundreds of articles every day. (A few links follow this article.) When he took Twitter private, Musk was able to take many dramatic actions with little discussion or oversight. These include disbanding the board, laying off 50% of the workforce, launching – rescinding – relaunching Blue subscriptions, revoking and reinstating remote work, and issuing an "intense work" ultimatum. Individually and perhaps in combination, these may be good decisions. The execution of the changes has been flawed. The appearance of making changes with no planning has led advertisers to pull back because the value proposition is no longer apparent. This is causing some to question Musk's leadership capabilities.
Others are raising the conversation to discuss what is and what a CEO's role should be. Business Insider writes that Musk being the CEO of three companies demonstrates how the modern CEO job is broken. Wired reported about The 'Shamanification' of the Tech CEO in July. In May, The New York Times published The Myth of the Genius Tech Inventor. MasterClass offers several programs featuring high-profile business leaders. This is a global question, as demonstrated by the Bangkok Post's article The Myth of Tech God Is Crumbling. In last week's newsletter, I spoke about how the business media glorifies CEOs, especially young ones.
What should a CEO's focus be? It should be working to build an organization that stands the test of time. MIT Sloan wrote about the need for digital transformation to build a 'future-ready' firm. Being able to reinvent yourself to prepare for the future is not new. For decades, Charles Handy (London School of Business) talked about the need for Second Curves.
No one will argue that companies need to be future-ready. The challenge for leaders is how to define the word future. In today's era of private equity and activist investors, the focus for many firms is on the near term. Strategies that focus on maximizing shareholder value over a 12 to 24-month period can look much different than ones that focus on growing markets over a 3 to 7-year time horizon. Investing in plants and capital equipment may require diverting funds from activities that bring immediate P&L benefits. This share price first view has been growing and evolving for over more than fifty years. Encouraging and incentivizing leaders and investors will require adopting second curve thinking. The time to change is now when our global economic strength is still our greatest asset. We need to shift the role of the CEO from a singular focus on shareholder value to stakeholder value.
Striking the proper balance between shareholder value and stakeholder value requires playing a long game. Using GE as an example, Jack Welch dramatically increased shareholder value. But he left behind an organization that was unable to maintain that value. Looking at GE’s stock price, we can see both the creation and destruction of shareholder value. In December 1982, GE traded around $8. After 15 years of steady growth under Welch, GE traded at $70 in February 1997. In August of 2000, GE stock reached $477, shortly before Welch's retirement in 2001. By January 2003, the house of cards began to fall, and the stock was trading at $199. In the years since, GE stock has bounced around, getting as high as $331 and as low as $68. It is currently trading at around $87 per share.
I am a believer that life is made up of Venn diagrams. I believe that the companies that are the most successful over time are those that align shareholder and stakeholder value and create the highest degree of overlap between the two.
Book Review - The Man Who Broke Capitalism by David Gelles
The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America is a study of Jack Welch's tenure at GE and the legacy he left behind. Using the story of GE, Mr. Gelles is trying to show the negative effects that are the result of a singular focus on shareholder value. The discussion of stakeholder value is important. Shareholders are critical stakeholders. GE returned great returns to shareholders during his tenure, but he left behind a company that lacked focus and cohesion. As GE has struggled since and shareholders have lost significant value.
I appreciate that Mr. Gelles has a clear point of view, and he makes it clear to the reader what it is. To him, Jack Welch is a pariah and we should blame him for all of our current economic ills and the failings of capitalism. His perspective is in the title when he says Jack Welch "gutted the soul of corporate America." He says that Welch was the first celebrity CEO. This is simply not the case; Lee Iacocca, Michael Eisner, Ross Perot, Carl Ichan, and T. Boone Pickens were celebrity CEOs at the same time.
I do not believe Welch was a great CEO, nor do I believe he was a nice person. I was at function where he was the guest of honor and how he treated people was deplorable. I believe that by focusing on and demonizing Jack Welch's time at GE the more important discussion of balancing shareholder and stakeholder value is lost.
Jack Welch was a product of his times. From Michael Milken's junk bonds to corporate raiders like Carl Icahn, Boone Pickens Victor Posner and many others, the focus of a publicly traded CEO was to maximize shareholder value. If you didn't, you ran the risk of being the target of a hostile takeover. The book would be much focused on the behaviors that became common place in the 1970s, 1980s, and 1990s and their impact on the 2000s, 2010s, and today. Jack Welch would have been just one example. He was one of the first and perhaps the most successful of the shareholder only CEOs. There are a few paragraphs that describe GE executives who went on to be effective CEOs at other firms. More is written about those who failed in their post-GE careers.
Jack Welch created shareholder value but the GE he left behind was a fragile organization that has seen shareholder value fluctuate wildly before falling to its current level. The question becomes would GE shareholders have been better off with continued steady, patient pre-1998 growth rather that the peaks and valleys that have happened since. Many other types of shareholders would have been better off. This is an incredibly difficult question and I do not pretend to have the answers. We need to have the discussions. This book would have been much more effective if the focus had not been solely on Jack Welch.
In recent years, several books along these lines have been published about Jack Welch. These include At Any Cost: Jack Welch, General Electric, and the Pursuit of ProfitOn and Power Failure: The Rise and Fall of an American Icon. I have not read either of these books. October 31, Malcolm Gladwell published Was Jack Welch the Greatest C.E.O. of His Day—or the Worst? in The New Yorker. His perspective is interesting.
What I'm Up To
I am between projects and focusing on enjoying the holiday season. This is one of the advantages of semi-retirement.
I am about to upload an update to my book to correct some grammatic issues. Any suggestions you may have are appreciated.
Chips and Salsa: Snack-sized news and posts
Thoughts on innovation in a time of high geo-political tension
You are either in a crisis or between crises.
Coaching for Leaders - Inheriting a Team in Crisis
As we talk about being future-ready, people are talking about Industry 4.0.
Unfortunately numbers don't lie.
Statista - Mass Shootings Reach a Four-Year High
Channeling anger can be productive; just don't let it consume you.
Northwestern Kellog - Anger and Decision Making
Life is like riding a bicycle; if you stop you fall down.
Fast Company - Why you’re still not happy after scoring a big win
An outstanding display of corporate diplomacy by Michelle Wie West (and she wasn't even there).
Golf Monthly - Michelle Wie West Defends the LPGA
Quotes
"Turnaround or growth, it's getting your people focused on the goal that is still the job of leadership.”
- Anne M. Mulcahy
" Anger is only one letter short of danger."
- Eleanor Roosevelt
The Leader With A Thousand Faces is available on Amazon.
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