Yeah it’s a common misconception. This is one of my business takes though so I wasn’t guessing lol.
Seriously go look at the difference in performance between internal ceo hires and people from the outside… It’s actually shocking.
What about CEOs who successfully turned around a company that was in bad shape when they took over? If you are an internal hire at a bad company, how likely are you to be part of the problem?
That almost never works. The only time the outside candidate is a better choice is when you’re looking to liquidate for the maximum amount of return not turn it around. When it’s time to run private equity financial engineering plays to extract as much as possible what you need is a private equity chainsaw specialist. In every other case you need someone who understands the business, the company culture (which isn’t actually changeable as Riverman pointed out), and understands what the various stakeholders want and has a long term relationship with those people. None of that sounds like an outsider and no amount of ‘fresh thinking’ is going to make up for all the shit they literally couldn’t know.
In my experience there are few things in business as insanely -EV as making changes to how things are done without fully understanding why they were done that way in the first place. When you see something that looks stupid it’s usually a jerry rigged fix to some larger problem that they fixed imperfectly. It’s like the business equivalent of a scar covering a really nasty injury that healed very imperfectly. Very often it is changeable with a higher level of resources, but you have to understand why it’s there to not resurface the usually massive problem it was patching.
Being new to a Fortune 500 company and also being it’s CEO who was turn the business around is a recipe for that happening over and over again. It isn’t that the business doesn’t need to be turned around and it isn’t that change isn’t required to do that… it’s that the new guy or gal isn’t in any danger of learning absolutely everything about why the business does everything in a time scale that isn’t measured in years.
Jesus I knew it made a lot of revenue but not that much. Wow!
I mean they poured a lot more than 1.65B into Youtube since the acquisition I suspect, but yeah that was a pretty strong acquisition. There are a few of WB’s greatest hits I’d put up next to Google buying Youtube. Zuckerburg buying Instagram for 1B has to be close as well.
Does this also apply to hiring executives at the level just below COO and CFO for a large company or is there value to bringing in an occasional external hire at that point?
Probably but my data isn’t as good. If I had to guess I would assume that for senior roles almost any external hire is going to be worse than a replacement level person from the inside. This is true for any position really… an internal hire you know pretty well and have a lot of data on, an external hire is obviously much less easy to judge.
The bigger the job and the bigger the company the more institutional knowledge matters, so the normal level of outside candidates looking better than they actually are plus the new guy not knowing what’s going on is really hard to overcome.
Why are we giving a single person credit for these acquisitions?
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The obvious thought for someone who cares about the purpose of this site is to wonder how much of this applies to government.
Capitalism. Duh.
Because ultimately it’s their decision. Corporations, by and large, are dictatorships.
The responsible party gets the blame if it goes wrong so it stands to reason they would get the credit.
Where this line of thinking goes wrong is when people start saying stupid shit like ‘we need to make sure that the person in this job is the best possible person so we should make sure we’re paying them in the top quintile in our industry.’ No absolutely not. The best person to make those decisions already works at your company, and in a rational world none of your competitors would be willing to pay them what they already make because they wouldn’t be worth that there for years.
CEO pay is kind of like systemic racism. There’s this inherent assumption by the people defending it that the people on the other side are morally right but out of sync with the real world. In real life the best argument against both absurd CEO pay and racism is that they do not accomplish anything of value and actually harm everyone involved (except for the CEO who gets the fat check… with racism nobody wins except some random white people who will never really know that their slot was supposed to be filled by a minority who was better than them… and even that framing is busted if you dig even a little bit deeper).
I’m not against almost anything big picture because of morality. Morality is a great filter for my own personal behavior, but for figuring out how the world works it’s basically useless. It also cedes too many insanely powerful arguments on the practical details. When I go after racism, income inequality, or climate change I refuse to make the argument about morality. It’s about operations and profit/loss always because those are things that the other person has a much harder time arguing and the facts are heavily on my side. The bad guys want us to make moral arguments because it makes it seem like they are right on about the concrete stuff.
Quite a bit probably. I don’t see why institutional knowledge wouldn’t be massively important for running any large entity.
Also strange that a forum full of former poker players is looking at these acquisitions from a results-oriented basis. This is generally representative of our societal issue that provides cover to rich people who don’t pay their fair share of taxes–the assumption that success is due to making correct decisions and that therefore lack of success is due to making wrong decisions. Not enough talk of luck and other factors that are outside the control of the executive.
Also, if 8+ hours of meetings per day is indicative of CEO-level work then I am grossly underpaid, sitting through 8 hours of meetings as a middle manager (thanks, Zoom).
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I’m definitely not looking at it from a results oriented point of view. There is a clear pattern across a decent sized sample that CEO’s from the outside tend to fail at significantly higher rates. There are also CEO’s who have a significant track record for just absolutely waffle crushing almost every choice they encounter.
This forum on the one hand wants these people to be evil geniuses who are colluding to hold the worker down while simultaneously claiming that they deserve almost no credit for whatever their organization does. In real life neither of those things is usually true. There are exceptions to both, but neither situation is close to normal.
Luck of course plays a role in every outcome, but there are plenty of people who run bad and do well anyway. For example I give AOC very nearly all the credit for getting herself elected and I give Warren Buffett almost all the credit for BRK being such a massive success. In both cases there are key collaborators nearby who contributed a lot, but you’re still talking about a group of <5 people in both cases.
This is not me defending every CEO since most of them, by definition, are replacement level employees who the company could have hired internally for 50% more than they pay the VP’s to give the VP’s a reason to want the extra stress. The VP of Ops should probably make 90% as much as the CEO for this reason.
This can be a double edged sword. Sometimes an organization needs to change and the people that have been there for 20+ years can be more of a barrier to change than a help.
CEOs get hired for different reasons. Sometimes they’re hired to replace a retiring CEO from a successful company and the job is to keep those shareholder returns chugging along. Sometimes they’re hired to totally change the direction of a company that’s on a bad course.
I wouldn’t go that far. Corporate governance isn’t a utopia, but publicly traded company CEOs need to play ball with Boards.
She’s a great political talent, but there was still a ton of luck involved.
She was born and lived in a district in which the representative didn’t live. That in itself is an opportunity that not everyone has. If she had instead lived in Idaho or something, no way she gets elected.
There were probably less than 20 districts where she could have done what she did. Props to her for taking advantage of it, but ignoring the luck here is a pretty silly.
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IME the board answers to the CEO not the other way around. The situations where it doesn’t the ‘board’ is usually a founder or a founders family that own enough of the stock to call the shots… and then yeah the CEO is usually just an order taker.
I don’t think this is consistent with contemporary management theory. CEOs are usually expected to do “leadership stuff” like establish a corporate culture and ethical framework, inspire colleagues, and provide high level direction on where the company should be going. Even when they make their most concrete decisions, all the technical work is done by others to lay out the pros/cons of different options as clearly as possible and then the CEO decides. I think one level down there is more need for technical and industry expertise (CFO, COO).