Back in the day, I was impressed with Jack Welch because he seemingly accomplished the impossible by managing a successful US conglomerate. His public facing strategy was to own one of the top 2 firms in their industry - others would be axed. This enforced discipline among the division managers. Other conglomerates divested themselves of their non-core businesses because as you said, you can’t be a credible expert on dozens of separate divisions.
In middle and low income countries, there is a role for the conglomerate: they can operate complicated internal supply chains and educate their workforce on standard business practices in an environment with, shall we say, underdeveloped contract law and enforcement and general difficulty in getting sh-t done. In high income countries, there is much greater scope for transactions between businesses, so conglomerates only deliver red tape.
In fact GE was earning the bulk of its profits from its lending business, because it wasn’t regulated like ordinary banks are. This became clearer during the financial crisis. Oops: I guess the GE conglomerate wasn’t that efficient after all. It was known that Walsh would buy and sell companies to smooth out earnings and keep Wall St happy, but it was thought at the time that he had a grasp of the fundamentals as well. He would make a terrific subject of a book about the failings of US MBA led management.
Yes, to my mind - unless the CEO is the billionaire owner/founder of the company, he’s just a hired hand like veryone else. Nothing he does is worth even 5 times what the VP’s do, let alone 200+ times what the lowly workers make.
However, CEO pay is determined by the board. Just for fun, google the board members. For any major corporation, other than a token or two from academia they are … oddly enough… mostly other CEO’s or ex-CEO’s who obviously feel CEO’s are worth what they recommend they be paid. The business term is “circle jerk”.
Or if is like Larry Ellison, who blew off his speech at OracleWorld to watch his yacht race in the America’s Cup race. And who, as far as I can tell when working at Oracle, never visited anyone anywhere.
Sure, but I’m just giving my experience, the same as you are.
I don’t want to say where I work, but I work at one of the world’s biggest medical companies, and we see so much of our CEO that I started to wonder if at least some of the internal videos are AI generated or deep fakes.
And again; I’m not saying working hard means they are entitled to 200x a regular worker’s pay, when many of those 200 people work crazy hours and have stress too.
I am simply saying that in my experience at this company, and others I’ve worked at, the CEO is very busy and under plenty of pressure. Being on the board looks like a pretty cushy job (though this is from data on e.g. how many meetings board members need to attend, not direct experience). CEO…not so much.
For them, the company lives or dies by their actions - or whether he picked good people to run the company for him. I’m just saying the guy who founded and built the company is entitled to the untold riches that result. The hired hands are not entitled to hundreds of millions, no matter how good they are. They are hired hands.
However, the decision is up to the other hired hands on the board, who seem to think CEO’s are entitled to obscene enrichment.
Most corporate boards are made up of CEOs from other publicly traded companies. This is a very good reason why CEO pay has skyrocketed: the people who decide how much to pay CEOs are other CEOs.
New CEOs may be under the control of the board, but after a while the board is picked by a long termed CEO, and they don’t have a lot of practical oversight unless the CEO badly screws up. Especially if the CEO owns a lot of stock.
And speaking of good hires, when Mark Hurd, not a long term CEO of HP, got fired for lying on expense reports about taking a consultant he was hitting on with him on business trips (he failed), Larry hired him, saying loudly that HP was stupid for firing him for such an offense.
Not long after Oracle HR sent an email to all employees saying that we were not supposed to falsify our expense reports. With the obvious context that even if Larry said it was okay, it wasn’t for us.
My understanding is that Larry’s last decade or so of being CEO was pretty cushy. I’m not saying that’s always true.
But again, Ellison was co-founder of Oracle as I understand. Again, not a hired hand. By the time a company is big enought to hire a CEO and pay in the tens of millions, probably nobody who is hired on can afford enough stock to have any serious control. (If they can, they don’t need the job). The board is rubber-stamped by institutional investors whose concern is stock price. However, a CEO who fails to perform to the board’s satisfaction could easily face an investor inquisition.
I’m not disputing boards fire people - I brought up Mark Hurd, an example, fired by one of the worst boards in the industry. But if the CEO is there long enough, and built up enough power, he or she will eventually name board members who will support them. The CEO talks to the investors more than the board does, though of course a big investor might have a place on the board.
Of course the CEO must have a few good ideas, but an old VP of mine said that anyone looks like a genius when the market is going up, you can only tell if they are when it goes down. So good results doesn’t guarantee good CEO.