Our Superhero CEOs: Richly Rewarded for Failure

| Hidden Dimensions

“My great concern is not whether you have failed, but whether you are content with your failure.” — Abraham Lincoln

“Nearly all men can stand adversity, but if you want to test a man’s character, give him power.” — Abraham Lincoln

We live in a superhero culture. Authority is rolled upwards in corporations and the government until there’s only one person at the top who can make definitive decisions. And then, in a fit of irrational idealism, we reward them for total failure. Except, of course, Apple.

One of the best run companies in America is USAA. It’s a financial services and insurance company that caters to military and retired military members. I think one of the reasons it’s so well run is because the executive management consists of former U.S. military officers, men and women. In the military, no matter what you think about the use of military force, strong principles of honor, responsibility, judgment, proper use of authority and self-discipline are intrinsic to the job.

Superhero

I wish more CEOs in the tech industry had former military experience as successful, high-ranking officers. Military people know that you can delegate authority, but must retain personal responsibility.

The reason I feel that way is because there’s a strong tradition of service in the military. By that, I mean there is no authority and power without the recognition that the authority and power are granted for the service of those underneath — and those civilans served. In other words, authority is granted solely for the good of those tendered to, not the one granted the authority. I think that’s why USAA is such a well run company. The tradition is service.

When I look at corporate America, especially the high tech companies I write about all the time, I don’t see many notable examples of C-level executives being brought to a just resolution for their failure. People lower in the chain always take the fall because the top level people  wrongly delegate responsibility but not authority. In the military, if you abuse the troops, use your power for self-gratification or personal gain, or, worst of all, lose a major battle (and survive), there will be appropriate investigation and a possible court martial. No general or admiral has been rewarded, at least by the military, with wealth beyond dreams for abject failure.

One High Tech CEO

Let’s look at Leo Apotheker. He totally mismanaged Hewlett Packard. He took the remnants of a prestigious computer company that Mark Hurd and Carly Fiorina left in shambles and proceeded to inflict further damage by torching the webOS, TouchPad and PC segments of the business. He betrayed the employees, the company tradition, and the stockholders. For this work, he will receive a total of US$25.4 million in compensation.

The problem with this kind of employment agreement is that CEOs develop a false sense of self. The wealth bestowed upon them makes them feel that they are superheros by virtue of their great compensation, and they rationalize that their failure was beyond their control.

When Steve Jobs left Apple in 1985, as countless histories retell, Mr. Jobs was in a fitful state of depression and feeling of failure. A long period of introspection followed, and he became stronger for it all. Without failure, there is no learning and changing of ways. Without failure, there is no introspection and self diagnosis. There is no feedback mechanism to evaluate future success.

Modern high tech CEOs drift from job to job, living in multi-million dollar houses, always believing that they are superheros, a gift to humankind. Some believe that the authority they are given is intended for their own benefit, rather than being able to lead the hardworking people of the company into prosperity. The carnage they leave behind is just part of the job description: you move around until you hit it big, or retire with the trappings of wealth and accomplishment.

Even though Mr. Jobs didn’t serve in the military, he has shown a fine-tuned sense of self, an ability to temper great authority with a rational estimation of how his behavior has led to success. That’s why he has taken a dollar a year in salary. It’s his public statement that his wealth shall be tied to Apple’s stock, the value of the company he founded, and not to a selfish plundering of the corporate coffers.

When boards of directors stop richly rewarding CEOs for driving their company in to failure, with Apple as a standard for success, American technology companies will be better off — and a better place to work.

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21 Comments Leave Your Own

Lee Dronick

As a retired Navy serviceman I would say “Spot on!”

geoduck

Very well put.
I would add one aspect that derives from this: the growing anger at the “wealthy class”.

People in the streets are hurting. Unemployment is high. Many of those that are working are not in the job they want but in the one they have to take to survive. Worst of all many are getting laid off not because they screwed up but because of decisions made by someone that has never set foot outside of the boardroom, never worked on the line, never dealt face to face with a customer*. People see this. Then they see people at the top screwing up so badly and then getting more money as “severance” or “compensation” than they and their children will earn in a lifetime. Is it any wonder there is more and more anger at “Wall Street” and “Bankers” and others?

Taking the HP example, Apotheker screwed it up royally. He hurt the shareholders, he hurt the WebOS team, he hurt the PC team, he hurt the customers, he has completely F-ed up everything he touched at HP and then walks away with $25mil. Not only that the Board that hired him and then went along with this fiasco is still getting paid too.. Why aren’t all of their heads on the block? They are as guilty for going along as he is?

What does that say to the average man on the street that is trying to figure out how to pay for his kids braces? What does that say to the person that works hard, plays by the rules, and has to make concessions to management so they can maintain the stock price? What does that say to the workers in industries that do a good job and then have to train their replacements because the factory is moving overseas (something I saw myself in a previous job)? What does it say to the person that sees programs, and schools, and services being cut and yet Congress giving tax breaks to companies that move jobs overseas?

Is it any wonder that cynicism and anger are rising? Is it any wonder that voter turnout in the US and elsewhere is in a death spiral? Is it any wonder than that there are more calls for an “American Spring”?

*For example I was laid off in August, not because of MY work, but because the new, highly paid Controller decided one day that the IT team could do the same work with three people rather than four. I was just one of nearly 50 people laid off from various units that week in the name of “efficiency”. He had only been with the company for five or six months so he really knew nothing about our jobs other than a line on a spreadsheet.

Lancashire-Witch

Wall Street - please note!  And rest of the global financial “industry” too.

palenoue

Good article, but what can we do about it?  Is there anything we peasants can do to topple these hollow superheroes and the idiots that let them get away with incompetence?  Where is our kryptonite?

BurmaYank

Is it even possible that Meg Whitman could ever be even as competent there as (her California nemesis) Carly?

Will her “golden parachute” be as rich as (the male) Apotheker’s & Hurd’s, or has HP found a cowardly way to minimize its ballooning risk of frequent enormous “golden parachute” losses by choosing (cheaper) women CEOs?

Gareth Harris

We all know the story of the goose that laid the golden eggs. There is a related psychological game called “The Nuts Game” [ http://www.g-r-e-e-d.com/Nuts Game.htm ], that examines how humans share resource pools. Then, too, is the medieval “Tragedy of the Commons”,  [http://en.wikipedia.org/wiki/Tragedy_of_the_commons ], about some people who overgrazed the public lands.

Our modern society has a common technical economy on which we all graze and depend. Some take more than their share and clearly don’t earn it.

I was taught by my father to deliver a fair day’s work for a fair day’s wage and to make products of which I could be proud. I believe Apple has succeeded because they did that. The rest of our industry followed John Ruskin’s observation: ?There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.?

But as John alluded we have now developed a structure built on the old “it’s not what you know, but who you know.”  And the only way we measure success is with money. How’s that working out?

FlipFriddle

Excellent article. We’ve had to sit here in Rochester and watch a series of bumbling CEOs come in and mismanage Kodak and Xerox into the ground and yet, they always leave with huge piles of cash, while the city coffers dry up and young people move away to find work. I’m sure the current loser Perez at Kodak will get nice compensation when he sells the company. I hope George Eastman haunts his ass for the rest of his life.

I remember reading somewhere, how Apple was an anomally, that their business is successful despite ignoring most of the business theory of the last 20 years; it’s run like an early 20th century company. I guess all they’re teaching in business schools these days is how to manage the bottom line and suck up to the share price, and then take what you can and split.

PorthosJon

Well said! Here, Here! and any other platitudes I can think of.

Compensation of that magnitude is really not appropriate for any Executive of a publicly owned company.  What people seem to forget is that Board Members are appointed to look after the interests of the owners, the Stock Holders.

Executives run roughshod over companies because the owners allow them to.

The same can be said for Boards (and therefore the Executives that they appoint) as can be said for the American Government- vote the bums out if they suck and don’t represent your interests.

BurmaYank

”...all they?re teaching in business schools these days is how to manage the bottom line and suck up to the share price, and then take what you can and split.”

That assessment is utterly/tragically truthful, AFAICS!  That is apparently all they?re teaching in all US business schools these last 3-4 decades.

Apple has clearly revealed how ignorant, stupid & worse-than-worthless everything preached at Harvard, Stanford, Wharton etc. schools of business truly is for managing the operation of a healthy business.

Paul Goodwin

geoduck. And it was done so they could meet their quarterly targets so they could get their incentive bonuses, a fraction of which would have probably paid for all 50 people that got laid off. I’ve listened to these people talking. They do not live in our world and could care less.

Ross Edwards

Good article, but what can we do about it?  Is there anything we peasants can do to topple these hollow superheroes and the idiots that let them get away with incompetence?  Where is our kryptonite?

You’ve had it all along.  All you “peasants” have to do is refuse to do business with such companies.  If enough people agree with you, those companies will be forced to change or fail for lack of income.

AT&T was up to these shenanigans right up until divestiture thirty years ago, and it cost my family a nest egg thanks to the stock revamp that left the rank-and-file without a chair when the music stopped.  (This was when I was a kid and my father was a longstanding employee.  He was locked into his pension and had to stay through the Mountain Bell era and the US West era, finally retiring at the time of the Qwest transition.  He was miserable.)  Because of their duplicity, I don’t do business with AT&T.  Not ever.  Not even a dollar.  Even when they were the only carrier that made available a product I fervently wanted: the iPhone.  I waited, and another solution presented itself.  My decision didn’t sink AT&T, I’m sorry to say.  But they’re not surviving at my sufferance, and if enough people agree with me, they’ll eventually be forced into reckoning.

dan

is this an argument for compulsory military service?

geoduck

?
is this an argument for compulsory military service?

I hope not. The last thing the US needs is a bunch of sarcastic irreverent gits like me in the military. We don’t take orders well
LOL

Lee Dronick

is this an argument for compulsory military service?

Something, it doesn’t have to be military. Peace Corps, AmeriCorps (my niece did that), something like that.

geoduck

Something, it doesn?t have to be military. Peace Corps, AmeriCorps (my niece did that), something like that.

When I was in college a friend of mine suggested that we set up the Anti-Peace corps. It would send groups of drunken frat boys to first world countries to set them back a bit so third world countries could catch up.

Lee Dronick

When I was in college a friend of mine suggested that we set up the Anti-Peace corps. It would send groups of drunken frat boys to first world countries to set them back a bit so third world countries could catch up.

They are already here.

wab95

John:

Excellent assessment.

I think the key concepts here are service, responsibility and accountability. These are three principal buttresses of ‘honour’, a virtue characteristic of all heroes, super or otherwise.

Best of all, not only can they be practised in or out of the military (one can think of numerous theatres for service), they can be taught to our kids at home.

matt_s

dan said on September 23rd, 2011 at 6:38 PM:

is this an argument for compulsory military service?

I hope so. We need to return to the draft. If we didn’t have a professional, all-volunteer armed forces, the Iraq & Afghanistan wars would have been long concluded.

Do you think American families from all walks of life would put up with this for more than a decade if little Johnny or Betsy had been drafted? No way.

Re-instituting the draft would bring about the end to what has become “perma-wars.”

Dean Lewis

Not buying the argument for the draft. Vietnam lasted an awful long time, and that was a drafted war. In fact, it was a “conflict” for almost as long or longer than it was a war—such that my friend’s father can’t get veteran’s housing assistance for an Assisted Living home because only wars count to get that money. But, not wanted to derail into veterans issues…

I also don’t believe compulsory service does anything except make people who don’t want to do it bitter. Compassion and a service attitude can’t be forced onto people. That kind of thing has to be learned and developed: not ordered. It wouldn’t matter if it was the army or the AmeriCorps, force people into it and you’re just going to get a ton of people in there slacking because they don’t want to be there. The energy spent to bring them around can be better spent on people who do want to be there (give or take those there for economic and lack of choice reasons, but, also, that’s another topic for another day).

AKjohn

Way to go John!

Sounds to me like you his the nail on the head.

I heard somewhere.. (NPR?)  that “they” haven’t taught ethics in Business school since the late 80’s.

Is this right? Any business school attendees here?

A little good ‘ol fashioned Ethics 101 would go a LONG way to solving this.

Just my humble 2? as a public servant (Middle School teacher of 20 years+)

From North Pole

CityGuide

John,

As the scion of an Army DI and advisor with two Vietnam tours, I could not agree more about the virtues of learning accountability, responsibility, and being able to explain one’s actions in clear, concise terms.

As an analyst in the financial industry (and business school attendee), I often wondered about the phrase “we need to pay competitive salaries for top-level talent” as used for managers in the investment groups, especially brokerage houses purchased by commercial bank holding companies. What talent did they bring to the table prior to the financial meltdown? It may be a vast oversimplification, but they were paid to make money by making money following examples set by takeover “specialists” like Carl Icahn and KKR. The concept of “maximizing shareholder value” does not necessarily include the concept of improving assembly processes, making better products or preserving company jobs. And perhaps because of this, the ethics of conduct in investment banking are somewhat different than for commercial banking - in one you are answerable to whether your money made money, and the other in whether your tangible assets made money. The result is a situation in which making insanely great products matters less than making those quarterly dividend payments.

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