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CEOs are hugely expensive – why not automate them?

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Re: CEOs are hugely expensive – why not automate them?

#91

Post by ForHackernews »

kaczordon wrote: post #77
alexgmcm wrote: post #27

I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.

There was a Danish study that showed that a death in the family of a Danish CEO led, on average, to a 9 percent decline in the profitability of the corporation. If it was the death of a spouse, the decline was 15 percent and, if it was a child who died, 21 percent. From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Ou…

Technically, doesn't this study only demonstrate that a distracted CEO is a risk to firm performance? Sounds like all the more reason to replace them with robots that don't have families.

Re: CEOs are hugely expensive – why not automate them?

#92

Post by CPLX »

alexgmcm wrote: post #27

I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.

The issue with CEO pay, as well as pay for fund managers, is basically the same. It's clearly understood as a principal/agent problem, to use economics jargon.[0]

Here's how it works:

1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified and the decisions are made by people responsible for managing money.

2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management led by the CEO.

3) What actually happens is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that.

Everyone involved will concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations campaigns and fund business schools and business publications to rationalize and create a sheen of reasonableness about why this is all the natural order of things.

But, at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it.

Because they want to, and because the system lets them.

[0] https://en.wikipedia.org/wiki/Principal–agent_problem

Re: CEOs are hugely expensive – why not automate them?

#93

Post by makapuf »

kaczordon wrote: post #77
alexgmcm wrote: post #27

I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.

There was a Danish study that showed that a death in the family of a Danish CEO led, on average, to a 9 percent decline in the profitability of the corporation. If it was the death of a spouse, the decline was 15 percent and, if it was a child who died, 21 percent. From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Ou…

To be honest, this shows that a dysfunctional CEO (for completely understandable reasons) leads to a nonprofitable firm, not that value is added. You could say that people with no or defective keyboard have a hard time programming, but the best keyboard does not add significant value to a developer.

Re: CEOs are hugely expensive – why not automate them?

#94

Post by skystarman »

alexgmcm wrote: post #27

I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.

There are CEOs that are truly world class and transform companies and provide tons of value and are worth many more times what their comp is. They are the exception not the rule though.

It's almost impossible to know if you've found the next Bob Iger, Nadella or a John Sculley when you hire them. Of course with hindsight you can point to certain things but it's hard in the moment.

And for the most part boards pay people based on their belief that they've found the next Iger, not pay them like s/he could nearly destroy the company like Sculley almost did with Apple.

Re: CEOs are hugely expensive – why not automate them?

#95

Post by skystarman »

ForHackernews wrote: post #91
kaczordon wrote: post #77

Earlier quoted context omitted.

There was a Danish study that showed that a death in the family of a Danish CEO led, on average, to a 9 percent decline in the profitability of the corporation. If it was the death of a spouse, the decline was 15 percent and, if it was a child who died, 21 percent. From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Ou…

Technically, doesn't this study only demonstrate that a distracted CEO is a risk to firm performance? Sounds like all the more reason to replace them with robots that don't have families.

My Amazon Alexa has like a 60% success rate when I ask it basic questions that take me 10 seconds to google on my phone.

Something tells me AI isn't quite there yet to run multi-billion dollar firms and won't be for a while.

Re: CEOs are hugely expensive – why not automate them?

#96

Post by MattGaiser »

harperlee wrote: post #60
ARandomerDude wrote: post #42

CEOs aren't paid for the day-to-day value they provide to the company. They're paid for the long-term, strategic value the owners think they might provide the company in comparison to other candidates. So if you think CEO Candidate X will make you a 3x return on your investment, but CEO Candidate Y will make you a 5x return, it's almost certainly worth it to pay him/her the extra $200K to get you there, if that's the…

They should then be compensated with a leveraged long-term derivative product that pays based on the stock difference between their company and the industry, 5 to 10 years apart. "You want to be insanely rich? Here's a huge company that's not yours as a resource, now make it so it is the best one in 10 years!"

So what incentive does that CEO have to be cautious with my capital?

That just encourages extreme risk.

Re: CEOs are hugely expensive – why not automate them?

#97

Post by majormajor »

kaczordon wrote: post #77
alexgmcm wrote: post #27

I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.

There was a Danish study that showed that a death in the family of a Danish CEO led, on average, to a 9 percent decline in the profitability of the corporation. If it was the death of a spouse, the decline was 15 percent and, if it was a child who died, 21 percent. From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Ou…

That demonstrates that a CEO can definitely affect results, but what's the baseline? Would the "null CEO" script robot produce the same value as the non-grieving CEO, or the same value as the grieving one?

Re: CEOs are hugely expensive – why not automate them?

#98

Post by bmmayer1 »

ARandomerDude wrote: post #42

CEOs aren't paid for the day-to-day value they provide to the company. They're paid for the long-term, strategic value the owners think they might provide the company in comparison to other candidates. So if you think CEO Candidate X will make you a 3x return on your investment, but CEO Candidate Y will make you a 5x return, it's almost certainly worth it to pay him/her the extra $200K to get you there, if that's the…

There's another thing that CEOs do which is provide values guidance and inspirational leadership for a company. That's not something a robot can do...yet.

Re: CEOs are hugely expensive – why not automate them?

#99

Post by whimsicalism »

Taek wrote: post #69
harperlee wrote: post #60

Earlier quoted context omitted.

They should then be compensated with a leveraged long-term derivative product that pays based on the stock difference between their company and the industry, 5 to 10 years apart. "You want to be insanely rich? Here's a huge company that's not yours as a resource, now make it so it is the best one in 10 years!"

The problem is that the best CEOs might not go for that. There are a lot of long term things that can impact a company for the negative, and you don't want your CEO bailing to a different company the moment that some macro event (semiconductor shortage, new competitor, global pandemic, etc) comes along and alters the long term upside of your company. You want a CEO who is going to stick around and make the best possi…

> the best CEOs might not go for that. There are a lot of long term things that can impact a company for the negative

You could develop a financial services company selling hedges for that risk to CEOs/executives?

> alters the long term upside of your company

I don't see how this is worse than short-term stock compensation

Re: CEOs are hugely expensive – why not automate them?

#100

Post by DarmokJalad1701 »

unfamiliar wrote: post #39
nocommentguy wrote: post #9

Earlier quoted context omitted.

To outsource something you have to be able to unambiguously specify requirements (otherwise costs blow up as you go back and forth). Once you’ve made it truly unambiguous, the next logical step is automation.

This is ridiculous. A spec like "grow the market cap of this company by 4x in 3 years" is entirely unambiguous, where do you even start automating it.

Write trading bots with enough capital to trigger gamma squeezes?
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