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The MBA Myth and the Cult of the CEO

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Re: The MBA Myth and the Cult of the CEO

#121

Post by firstplacelast »

lotsofpulp wrote: post #116
pembrook wrote: post #68

Earlier quoted context omitted.

But the data here says there is no statistically significant benefit to picking an “in-network” (ie. Former McKinsey, Goldman Sachs, Harvard, etc) executive. Which is the homogenous network that these people will continue to cultivate. This data says the parochial boys club doesn’t deliver any difference from the average state-school “rose through the ranks” type of executive.

The person I was responding to was postulating what would happen if a janitor was made CEO, to which I am saying there are some important skills or experiences that not everyone will have.

I think they were being a bit extremist with their language to make a point. However, fun anecdote, at my high school one of the janitors was a multi-millionaire (we lived in a fly-over state in a small city, so he was crazy rich by our standards).

He made it all because he was extremely good at playing/investing in the stock market (he never had a professional job in his life). The economics teachers would invite him to speak to their classes on a regular basis.

Re: The MBA Myth and the Cult of the CEO

#122

Post by pm90 »

supercanuck wrote: post #30
crazygringo wrote: post #9

I'm not sure this proves anything at all. To play devil's advocate: what if top CEO's (whether by school or by track record) look for harder challenges? Someone once said Dara Khosrowshahi took the CEO job of Uber not to make money, but because anyone willing to take that job is somehow who wants to play the CEO game on "hard mode". If everyone's taking a job where there's a 50% chance of failure for their personal s…

>Over the past year, we set out to answer these questions. We created a database of approximately 8,500 CEOs and their characteristics, each individually mapped to their respective companies for the duration of their tenure, and pulled company fundamentals from Compustat, stock returns from the University of Chicago's Center for Research in Security Prices (CRSP), CEO tenure and education from BoardEx, and long-form…

> It never ceases to amaze me we can dismiss data driven ideas in a blink of an eye because it doesn't fit a narrative we've developed through anecdotes.

This is perhaps because most people develop a paradigm of certain things and they're usually unwilling to accept a different one, even if the data is shouting at them to do so. And the more fundamental reason may be that people just don't like change.

Re: The MBA Myth and the Cult of the CEO

#123

Post by pm90 »

jandrewrogers wrote: post #64
crazygringo wrote: post #9

I'm not sure this proves anything at all. To play devil's advocate: what if top CEO's (whether by school or by track record) look for harder challenges? Someone once said Dara Khosrowshahi took the CEO job of Uber not to make money, but because anyone willing to take that job is somehow who wants to play the CEO game on "hard mode". If everyone's taking a job where there's a 50% chance of failure for their personal s…

I have been proximal to the CEO search process at a few different large companies, and at a minimum have anecdotal insight into what drives selection. CEOs are hired to fix perceived fundamental problems with the business, even at externally successful companies, and are evaluated for fit based on their history solving similar problems at other companies. Many times the business problem driving selection is invisible…

> but in the same breath people assert that anyone could be an effective CEO of a 10,000-person organization because the job entails no meaningful skill

That is not the assertion being made. The assertion is that most CEO's cannot make demonstrable contributions to the growth of a fairly mature company.

Re: The MBA Myth and the Cult of the CEO

#124

Post by pm90 »

bitL wrote: post #29

I am thinking about starting MBA in the fall (having MS in CS from a Top 10 US school), just because I can and it could be helpful for running my own companies. Talk me out of it please! (I might do a PhD in ML in parallel if I feel crazy enough)

It sounds like you should do... neither.

Your expectations seem to be very high and different from what the degree will deliver, on an average (you might be an outlier and still want to do it).

MBA: * expectations: help start your business * reality: networking, understand business process, opportunity cost (both time and money)

PhD: * expectations: help start your business * reality: petty politics, super high opportunity cost (both time and money), possibly minor improvement in research field (if that)

Re: The MBA Myth and the Cult of the CEO

#125

Post by josephcooney »

Aeolun wrote: post #115
com2kid wrote: post #110

Earlier quoted context omitted.

On the flip side, a team of developers who aren't even interested in adding anything of their own volition is also a bad sign. There has to be a balance.

Can’t say no to everything, or soon you won’t have anything to say no to any more.

You can't say "no" to everything, otherwise you'd be taking security's job.

Re: The MBA Myth and the Cult of the CEO

#126

Post by Gpetrium »

megablast wrote: post #114
75dvtwin wrote: post #84

Earlier quoted context omitted.

What most long-term investors would prefer is a cult of a 'process', rather than a cult of 'personality'. 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 or…

> 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. Would you prefer that the money just went to the owners, instead of the players on the field?

I think his view comes from a 'comparables' mindset. If you are to compare everyone else in the economy to entertainers, should they be receiving the multiples that they get? It makes other questions pop-up, for example.

If all the entertainer has to do is to practice and show up for the event, should he be making all of that or should a larger portion be distributed to all the other key variables that make him the center of attention?

Re: The MBA Myth and the Cult of the CEO

#127

Post by Nasrudith »

75dvtwin wrote: post #84
lordnacho wrote: post #2

This is great work. It's a real job gathering and analysing all that CEO performance data. My guess is that most people were suspecting this anyway. The fact is the CEO is there for a few years making a few key decisions, a large company is like an oil tanker, and markets are quite hard to predict. Taleb has cooked a fair bit of soup on the fooled by randomness idea, but in this case his observations are correct. It…

What most long-term investors would prefer is a cult of a 'process', rather than a cult of 'personality'. 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 or…

I'm not sure that a cult of process would be desirable - even putting aside irrationality of investors in the first place (and there is plenty in that field both mostly with short-term but also with long-term).

Process dominated companies often have issues with failing to adapt to a changing world as the reasons behind the process no longer exist and yet they stick with it anyway only to wind up out-competed and irrelevant.

On another note CEOs are generally overcompensated - especially if they wind up getting paid well even if they run things into the ground but I'm not sure process is a good antidote - I suspect the true issue is the lack of good feedback mechanisms/incentives given how many times companies have engaged in utterly stupid moves to try to inflate stock prices or earnings temporarily.

Meanwhile higher paid entertainers actually makes sense and are rational - they actually need to command the value fundamentally to be able to sustainably receive that much pay and paying them a 'reasonable' wage that massively undervalues them gives a strong incentive to jump ship when the enterprise depends upon them. It may not speak well to people's priorities given more important jobs that are paid far less but that is the economic reality.

Re: The MBA Myth and the Cult of the CEO

#128

Post by Gpetrium »

pembrook wrote: post #11

One of the best things to come out of so-called “big data” is the slow destruction of the human ego. I read an interesting joke few months back (not sure where, might have been in Capital Minded), the gist of it was basically: If 99% of people who buy corporations for a living can't beat a monkey throwing darts over time...why do we believe people who run corporations for a living are any smarter? They're both lookin…

One of the key balances we have to have with big data is to not let our personal biases and hubris blind us to believe in incomplete formulas/solutions simply because it follows our preconceived notion of ourselves, the tool (big data in this case), etc.

What if you look at non-frontier industries where utilizing frontier know-hows can create a competitive advantage?

Re: The MBA Myth and the Cult of the CEO

#129

Post by wyattpeak »

pembrook wrote: post #11

One of the best things to come out of so-called “big data” is the slow destruction of the human ego. I read an interesting joke few months back (not sure where, might have been in Capital Minded), the gist of it was basically: If 99% of people who buy corporations for a living can't beat a monkey throwing darts over time...why do we believe people who run corporations for a living are any smarter? They're both lookin…

> what would really change if we removed the CEO and replaced him with the Janitor?

I think this reads rather more out of the conclusion than the data can bear. It's possible (though I don't think plausible) that it's true, but the data is only based on people who were selected to run companies i.e. people who those doing the hiring saw to be a good fit. It says nothing about being run by a random person off the street, for which there is necessarily no data.

Re: The MBA Myth and the Cult of the CEO

#130

Post by yborg »

darawk wrote: post #52

I've done these same analyses before as well, and more. This is the correct analysis to do if you're looking to build an alpha-generative trading strategy. It is not necessarily the correct analysis to do if you want to measure actual CEO performance. If you want to measure CEO performance, you need to look at growth in fundamentals, not share price. The share price is going to reflect the market's beliefs about the…

Did you read the article? The objective was to prove or disprove the Jensen thesis that CEO compensation should be tied to gains in stock price because CEOs affect stock price. They were NOT attempting to answer the question of whether or not CEO quality and compensation affects the success of their underlying businesses.
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