I missed by the way in the quote above some reference to an analysis of the manner in which some forms of compensation have been structured so as to effectively hide it from shareholders and perhaps by extension, from less sophisticated board members, what may be termed, as the Economist quotes :
So, again, I highly recommend the overview, as usual with Economist overviews, it is chock full of references back to deeper works and while critical, not idiotically so.
Aw poor Sam, but the reality is your intervention was full of shit, like that patently absurd contrast between star sports players and your string of nice little just so assertions.
What I find rude and obnoxious is such interventions where you pretend somehow the conversation that has gone before is utterly off-base and somehow your khayali assertions are advancing it, all in a completely baseless tone of condenscation. As I said, regurgitating pop-Biz ideas doesn’t strike me as particularly effective in understanding the issues. Now you can counter that or not, as your pleasure. Or not.
For what it’s worth, I’ve reported directly to a few boards, and it was just like any other boss (except that it was a committee instead of an individual of course). A CEO is an employee like any other, and if he doesn’t live up to the expectations of the board, he knows it, suffers the consequences, and may even lose his job over it. And don’t kid yourself. If your board has to fire your ass, you’ll have big big trouble walking into another similar position, because like any job, the next employer will want to know what your last boss thought of you. And in the case of CEO, it’s impossible to lie, because you and your previous board were very high profile.
By the way, the OP is really talking a combination of founder and CEO, mostly the former.
Well, no, he is not. CEO’s often influence if not directly appoint Board members and there is often, depending on the structure of the corporation, reciprocal power. Boards, then, do not have a pure employee-patron relationship with a CEO and similar upper management, but something rather less clear. Typically speaking of course.
Rubbish, complete and utter rubbish. It is quite possible to lie, although if you were a high profile media star CEO it may be impossible, rarely is that the case. Certainly you may be forced to change and skip around, but lying is fully possible.
Yes, and I believe this was noted in the initial responses, such as my own.
I won’t even attempt to add anything to the arguement of those before me. I’m not a burger flipper or factory worker but not a big business type either. I will leave those who obviously know better to correct the OP (and they are doing a spectacular job).
But I would like to add that this
is a patently assumptive and probably mostly incorrect statement. While you are at college studying (and having fun) those “future factory workers” are most likely already working and paying taxes.
As someone who didn’t go to Uni straight from school, I knew many who were studying and partying when I was working. I am not for one minute saying going to Uni straight from school is a bad thing…quite the contrary really. Just don’t assume that those you knew at school who didn’t go off to uni were sitting round on their arses while you the mighty academian-future CEO was the only one working.
Collounsbury wrote
A CEO never “appoints board members,” though if he holds the simultaneous role of Chairman he may. Also, a CEO will often recruit good Board members, just as he’ll try to recruit good members to a board of Advisors, or good employees. As it turns out, in my current role I’m the Chairman as well as the CEO. And I still report to the board. If I fail to perform, I will be replaced, and it’s well-understood by everyone there. In fact, I know of many examples of Chairman/CEOs who were removed from their CEO duties because they didn’t do well. That’s not to say I’m not friendly with the board, but it’s similar to any other employer/employee relationship. Ultimately, everyone on the board is responsible to the shareholders, which in my world (startups), means that people who have invested millions of dollars hold board seats and own large percentages of the corporation. The notion that they are friendly with the CEO to a point of ignoring his mismanaging their money is silly.
I’d like to know how you presume this. Is it from experience? Or do you have a cite? Or is this just an assumption? “Rubbish, complete and utter rubbish” is a pretty strong charge for an assumption, so I assume you have experience or a cite to back you up. Let’s see your hand. In reality, it’s a small world, especially amongst Directors, CEOs and investors. A very small world. If you’re a CEO in a given industry, the odds are you’re one or at most two levels of indirection from every other Director at every other company in your industry. That’s just how it works. And when some CEO steps down in your industry, everybody in those circles knows what really happened.
Well, we all know that the simultaneous role is vanishingly rare. Given that deep rarity and the role played in selection, I abstracted away ffrom the detials.
Super, a wonderful assertion. Now, what constitutes a “good” board member in the eyes of a CEO does not, for reasons of interest, include someone who contradicts or is too independent of his judgement.
Classic agency problems.
You may look to: http://www.businessweek.com/bwdaily/dnflash/jan2003/nf20030110_4900.htm
for efforts on this matter.
Well, that makes me feel all warm and fuzzy.
It might even be true that you personally have surmounted the issues that I deal with in re our portfolio but also the clear aggregate problem in re non-independent Boards and lack of effective oversight.
Harldy silly, it’s clealry a serious issue – and since you’re in start ups I can say that I appear to be on the other side of the table, and from my perspective Boards are not strong enough, too beholden to the upper management and/or too passive.
Experience. Due diligence on American entities partnering with entities which we were looking to invest in.
Given I have encountered this several times in person, and given
Well, we need independent data. Perhaps you can be so good as to support your assertion it is not so the case.
In regards to my own, well the examples I am thinking of occured in a Hollywood connected industry, wherein the CEO actually was removed from two sequential firms. What the context was is hard to divine as many of the parties were not forthcoming.
Regardless,
Well, on the funding side of things, I can tell you that’s not the picture I see, except in the cases of the truly egregious.
Now, then, obviously we will have to come back to this with some data as it strikes me the anectdotal is singularly unenlightening. I shall return to with actual data at the earliest opportunity.
Well, feeling extra motivation, let me share this in advance of doing some actual digging:
“Corporate boards: The way we govern now” 9 Jan 2003
The Economist
You will note the picture is something less than encouraging for the investor. ah yes, and the vanishing rarity of the CEO-Chair.
[Edited due to copyright concerns. --Gaudere]
[Moderator Hat ON]
Collounsbury, you’re stepping close to the line again. I will strongly advise you to eschew personal comments about posters in GD, lest you lose your posting priviledges again. And don’t post full text of copyrighted articles, you know better than that.
[Moderator Hat OFF]
You seem to be assuming here that markets never fail. Is that your position?
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No, it’s someone putting someone else’s money on the table. And that has the potential to make a big difference. If you disagree, watch the way people spend money when they have an expense account sometime. Look at businessmen on business trips. Look at the kind of meals that attorneys order when the meal will be expensed back to the client. etc. etc. etc.
No it’s not, and I did not say that. I’m absolutely positive that some CEOs have been hired at salaries that are ridiculous compared to the value they bring to the company.
That doesn’t change the fact that by and large, CEOs have real skills that bring real values, and their salaries reflect both the scarcity of people with those skills, and the demand for them.
You seemed to be assuming it, however.
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In my experience, the greatest skills of those who are in top management positions are self-promotion and office politics. No studies to back it up, just MHO.
In any event, given that CEO’s are in a position to get paid salaries far in excess of whatever value they add; and given human nature; it seems reasonable to think that CEO’s are overpaid. Again, no studies - just MHO.
What is it about a CEO that puts them in a position to be paid far in excess of their value? And what is it about human nature that wants to pay CEOs more than they are worth?
They’re running the company.
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People are greedy. And many CEO’s are in a position to act upon that greed.
Not in my experience. I used to work for the CEO of a regional chain of home improvement stores which was owned by a megacorporation. He was let go very suddenly, and it was widely known that he was let go because he’d been caught cooking the books to make himself look good. he subsequently wound up as the CEO of a national chain of pet specialty retailers – a leg up, in short.
This is anecdotal evidence, but it DOES directly counter your anecdotal evidence.
I also worked for a medium-sized nonprofit. Because my dept. head was a dipshit and everybody knew it, I reported directly to the CEO a lot of the time – worked with several of them over the years. The way it worked where I worked was, the CEO pretty much got to pick his own boardmembers. He also was influential in getting them on various other boards. They owed him, in short, and they paid him back in all sorts of way. Believe me, a lot of backs get scratched in the upper levels of corproations. Nice work if you can get it.
lucwarm wrote
There’s a big difference.
The people who appoint CEOs, and ultimately approve of all money spent in the company are the shareholders, which in my world is 2 - 8 Venture Capital Investors, who hold board seats. True it’s not their money; they are investing it for someone else. But everything in their professional life, from salary, to bonuses, to future hireability, to reputation comes down to how well that investment of money performs. If a CEO fails, they fail, and in a huge way, typically to the tune of millions of dollars.
On the other hand, if a businessman spends $100 on a dinner where $30 could have sufficed, he may or may not be frowned upon, but there really is no serious tie to his credibility or compensation in his job.
Generally speaking, it’s the directors who appoint CEO’s. In theory, the directors are working on behalf of the shareholders.
If, in your industry, the directors are truly working on behalf of the shareholders, that’s fabulous. I’m not sure that’s the case in all industries.
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And if the board pays the CEO an extra million or two . . . ? (Particularly if the pay package is rubberstamped by a compensation consultant?)
Evil Captor wrote
I don’t mean to say that any CEO who is fired will never find a job again. But I do mean that his career is pretty much open to discovery by future employers. He doesn’t have the luxury of covering up past mistakes, as generally his future employer will know somebody who knows somebody who was on his last board or in senior management at his last company.
See, in the Director/CEO world (in fact, pretty much in management in general, but especially in upper management), it’s all about influence and contacts. It’s the nature of board members that they have lots of influential friends they can call.
In this case, what exactly did “cooking the books to make himself look good” mean, and how are you certain that this is why he was let go? If you meant that he was inflating his accomplishments and was let go because of personality conflicts, that’s not such a hard hurdle to surpass in a future job interview.
Also, I’m not denying that there are many lousy CEOs who end up getting peachy jobs after driving a company into the ground. I know of several examples of this happening where people I personally know were involved. But that doesn’t make it the rule. Plenty of losers get lucky breaks everywhere, and CEOs are no exception.
I can’t speak to non-profits.
And in profit-oriented corporations as well, CEOs are very influential in bringing in board members, as well as other employees. But that doesn’t change the fact that everybody from top to bottom has a boss, with the top boss being the shareholders.
So it’s your opinion that CEOs write their own salaries?
Get me a job as CEO with a huge multinational corporation, and I could do the same shit that 99% of CEOs are doing now.
I don’t see why people have all this admiration for CEOs. After all, they can delegate most of the work to others. And for the really important things that I couldn’t delegate, I’d just surround myself with a bunch of advisors to collaberate with me and help me make a decision. The rest of the time I’d just sit around eating pretzels and watching TV.