The MBA Myth and the Cult of the CEO

But even if you disagree, isn't that just another way of arriving to the authors same conclusion?

If share price is a terrible proxy for company health, then why are we paying CEOs based on it? And if it is a good proxy for company performance, then it's proving that CEOs are being grossly overpaid for what are essentially random outcomes. Under both scenarios, something is terribly wrong.

A process' is a combination of know-how + culture + rules + compliance.

Every business goes through cycles (eg startup, growth, pivot, then repeat)

At every cycle, different personal qualities of a CEO would be more beneficial.

However, a property of a company with a cult of 'process', is that the process will organically select and retain a right CEO at a right cycle.

So two outcomes of the above position: a) recognizing a company with a good process, is a very important and powerful skill to have (likely Warren Buffet has it).

b) averaging CEO performance without recognizing what cycle the company is at, compared to CEOs skills, is not by itself a measure of CEO performance. It is more of a proxy measure to whether the company has a sustainable and investment-ready process or not.

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By the way, with regards to > This is why it's not such a big deal for most people that Ronaldo or Messi get paid a lot more than their teammates, and the rest of society.

I would challenge that, and say that it is quite abnormal, historically, for entertainers to get paid this much.

The development of multiplicative technologies (radio, TV, internet), and lack of wars between the 'super-nations' -- is really what made entertainers into exceptionally wealthy profession.

So, yes it reasonable to assume better performing sportman will get paid more than their team mates. But it is not reasonable that they get paid this much... that bothers me.

He did something similar to Pixar.

Microsoft is another example. Same company, same staff, same products, 3 CEOs, stark difference in results.

Let's take a famous example - Steve Jobs. Booted from his own company, then NeXT was a middling success (because of its acquisition), and Pixar was a much larger success but much more because of John Lasseter than anything Jobs did. Was there anything there to suggest that Jobs was going to be as successful as he was with turn-of-the-century Apple? How could somebody who was that successful at the helm not have similarly suceeded in his previous ventures? At the same time, can any sane person say that Apple was destined to take off like a rocket, that Jobs was merely lucky to be in the CEO role when it happened and take all the credit, that therefore anybody else could've been CEO and Apple still would've turned out to be wildly successful? That is patently ridiculous.

People are not islands. People can be more than the sum of their circles. Jobs was as successful as he was because he was in the right company plus at the right time plus with the right people around him (Jony Ive present, John Sculley absent, etc.).

Now, the author doesn't mention this because the author has no way of quantifying the, for lack of a better encompassing term, "cultural fit" of any given CEO candidate with any given corporate setting. But just because the author does not understand the relationship does not mean that the relationship does not exist. That the economy fails to judge CEOs properly and offer the correct opportunities to the correct candidates does not mean that all candidates are appropriate in all roles with their performance more or less in the hands of fate. Getting a random result for non-random inputs is not evidence of randomness but evidence of misunderstanding the inputs or of a poor metric.

Postscript: boards are completely justified in firing CEOs for poor performance ostensibly due to external, macroeconomic factors. The captain's job is to weather storms, not return to Spain with naught but an excuse for why the King's colonial riches have sunk to the bottom of the Atlantic. Maybe the captain hired the wrong sailors who would've fared better in fairer weather. Maybe the captain was brought aboard a boat with a hole in the hull. But part of the captain's job is to make sure the ship is properly staffed and that holes are plugged. If they're not, then the captain doesn't get to cry foul for a storm exposing his incompetence. Jobs had his storms - the dot-com bust and the 2008 recession. So what?