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Evaluating the 'Doofus Factor' In Corporate Governance
PolygamousRanchKid writes with this quote from an article in the Economist:
"The directors of Yahoo! were 'so spooked by being cast as the worst board in the country' that they fired Carol Bartz as chief executive 'to show that they're not the doofuses that they are.' That was Ms Bartz's typically blunt verdict, offered to Fortune after she was dismissed with a phone call by the internet firm's chairman, Roy Bostock, on September 6th. She would say that. Yet Ms Bartz's criticisms of the board have been sympathetically received. Firing a chief executive by phone smacks of hasty, panicky decision-making. And Yahoo!'s board already had a poor reputation, having turned down an offer from Microsoft that valued the firm at several times what it is worth today. It is not just Yahoo!'s board that is feeling the heat. The directors of HP, another stumbling Silicon Valley giant, have been accused of serial ineptitude spanning the appointment and dismissal of Carly Fiorina as chief executive, the firing of her successor, Mark Hurd, and the selection of his replacement, Léo Apotheker. ... There is growing demand for boards to undergo a formal evaluation process, to assess both the performance of each individual board member and how they work together as a group. The European Union is considering new regulations that would require an independent evaluation of the board every three years."
A significant amount of research has been conducted that demonstrates monetary incentives that are too high actually severely decreases the effectiveness and productivity of a person to levels even lower than when monetary incentives are too low. I have no doubt this happening to corporate CEO boards across the western world. Any of these corporations could hire perfectly competent CEOs from business schools for 1/10 their current pay. But like frat boys they all sit on each others' boards and give each other multimillion dollar raises, bonuses, and parachutes, all at the investors' expense.
And fire them!
There was a recent Horizon programme (BBC) which said that psychopaths are 4 times more likely to be in the boards of businesses etc., than in other jobs.
Not surprising. I knew these people are good at manipulating, on my website I named a bunch since 2003 related to airtravel industry and Schiphol in particular, and that is actually what they are often picked for. To manipulate in the media etc. I'm not sure if this was just a recap of old research or new, if new then these researchers are not too bright (then again, what can you expect in the social sciences).
One of these researchers said it was hard to find the psyochopaths. Oh really? I can pick them out almost instantly. A good tool is reversible arguments. E.g. one such a-hole working for a dutch airport that wanted to expand said of those who were opposed and stopped it multiple times in court that 'a few times is ok, but this is ridiculous'. The same can be said of those a-holes of that airport. There plannes had been blocked by the courts, and yet these a-holes kept going against it and making new plans and/or getting the judgement overturned. So, he did exactly what he accused the opposing party of because it was unacceptable.
Try it! Look at someone you think is the biggest a-hole you ever saw (which are typically psychopaths who care nothing about anyone except themselves), and try looking for a reversible argument. I bet you will find one ore probably multiple.
Once we get rid of these people in boards of companies, perhaps life will improve.
Oh yes, the programme also said that these psychopaths can manipulate, make themselves look good to some people, but their performance is crap... Doesn't surprise me again, reminds me of former Schiphol director Cerfontaine, who has never amounted to anything, never did anything useful for any company even if the guys who hire him think so.
Even worse actually is that such morons (don't call them clever, they are not, as I said, with a few things to look out for you can easily push through their bulllshit-artistry), are even gettign honorary jobs at universities, perverting students...
...Most boards and CEO's score a doofus factor of 11. And, they are darned proud of that! It shows true innovation.
They were right - the revolution did not get televised. It was posted on YouTube instead. All in 120 characters. SLOOSH!
Interesting considering that board members are elected BY stockholders, and are supposed to represent their interests. Let them vote for the craziest folks they dare, as long as they vote for them. It seems silly that you would subject board members to arbitrary tests when they've won the acclamation of their shareholders.
Of course this highlights a big problem with corporate governance, namely that boards are elected by stockholders, but a combination of stockholder disinterest and large institutional and mutual fund investment in firms has led to the composition of the board ballot being decided by the CEO and management.
There's no such thing as a free lunch. If you don't want "doofuses" on your board of directors, don't vote for them. Setting up some sort of independent review system is simply going to present stockholders with another stream of information to ignore. If you believe in democratic corporate governance you have to let people vote for who they want, and accept the responsibility for what happens to the business. The fact that Carol Bartz did a pretty lame job running AOL, and that the company has been on a death spiral ever since the Time Warner merger -- and for practical reasons will probably never figure out how to make their combined business a going concern -- has a lot more to do with the poor performance of the firm, notwithstanding the board.
Don't blame me, I voted for Baltar.
They don't run companies effectively because they aren't really in charge of the company. Most board members do completely different things as day jobs. Some are on five or six boards. You cannot effectively run six multinational companies and also have a day job at a seventh, though you can surely succeed at pulling in seven salaries.
For example, when there were some shady stores about Cisco coming out earlier this year, I looked up their board to see who I could contact. Oh, one of them is the President of Stanford University. How much time do you think the President of Stanford spends keeping tabs on Cisco's corporate affairs, making sure that the company is run properly? Another one is, uh, Carol Bartz, until recently the CEO of Yahoo being discussed here. How much time do you think Carol Bartz took out of her Yahoo day job to make sure Cisco was being responsibly governed? Yet another Cisco board member; Michele Burns, CEO of Mercer, the world's largest H.R. consulting firm. Do you think she spent lots of her free time, when not running Mercer, to make sure Cisco is doing things right?
No, in practice, the boards don't have any idea what's going on, the CEOs all sit on each others' boards anyway, and the boards therefore leave things to the CEO, ignorance-is-bliss style, until someone forces them to care, either because the stock price is tanking, there is bad media attention, or unwelcome attention from prosecutors.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Actually the courts have restricted the nomination of directors on the corp proxy statement to those nominated by the incumbents. Unless you have a lot of money you can't win a proxy fight. The club protects itself with nominating committees picking only those good ole persons who fit their mold. The SEC tried to let 5% of shareholders nominated director candidates on the corp proxy, but the incumbents said it would be the end of the world and went to court and won that the SEC did not do the job right. So a shareholder (small) really can only sell. Now if you have 15% of the company or more you can probably get the boards attention. Today board elections remind me of elections in the old soviet union, one candidate in most cases. So corp america is really an ole (boys and girls) club.
James Carville, who was Clinton's right hand man just wrote advice to Obama, on how to look more compentent. His advise was to do lots of firings to appear in charge and for them to be scapegoats.
It works for past presidents like Reagan, Clinton, and Bush Jr. Surely, the board did this for the same reason to appear like they are doing their jobs etc. Many in upper management reading this can relate to newer guys coming and firing people in order to appear all scary and powerful to their new employer.
Most of the smart people who pay attention can see right through this.
http://saveie6.com/
At the end of the dot-com boom, people thought the market 'had matured' and I had my doubts. Well, they did get over the gold rush of buying everything they saw and acting on every idea anyone had, but the players that remained felt they had accomplished something and believed they knew it all. But in reality, the dot-com bust signalled the pre-adolescent period of the market -- approximately the same age kids begin to understand what death is.
Many of the players are still reacting to the changes of the market and few are leading. Yahoo lost its command of the market long before the dot-com and have been sustaining themselves on their old glory and people's reluctance to change their chat and email addresses. They don't listen to their users and often abuse and discourage them when they use their services in ways yahoo hadn't anticipated. Their teenage arrogance made them feel they knew it all and had it all under control and when they finally saw they didn't, well... the reactions and results speak for themselves don't they?
HP and Yahoo just look like a pack of fools and I think many will agree that they simply are. And while Google encourages fandom in all forms by its users and customers, HP and Yahoo have a record and reputation for discouraging, suppressing and even litigating against their users. (Only the MPAA and RIAA can actually sue their customers and expect to survive... not so much Yahoo and HP and their ilk... they don't have a true oligopoly in such a fluid market as 'the net')
Why is it that sacking peons as fast and impersonally as possible makes you a strong, visionary, leader who is willing to make tough decisions; but sacking your CEO good and hard makes you a panicky dumbass?
Remember when that flight attendant pulled the emergency line, told everyone to fuck off and quit in a most convincing style?
He was a bit of a hero in many peoples minds. The Yahoo! CEO! deserves at least as much of this as him; but the underlying problem remains the same.
Holding a BOD to any sort of responsibility is a great theory; but it runs against current practice. Often, the appointment is be a reward for sychophants, rent boys or sadsacks. Changing this could be a major upset of corporate organization.
Check out the search history for "Carly Fiorina" on slashdot and you'll find a slew of articles leading up to this one:
2002: Fiorina says HP may get out of the PC business.
2004: The Uncertain Promise of Utility Computing
2005: HP CEO Carly Fiorina to step down.
. . . An Engineer's view of Carly Fiorina's Leadership (Story later retracted by TechnologyReview on the grounds that they can no longer vouch for it. Interesting.. )
. . . HP and Apple Separate; Apple gets custody. (OOPS!)
2006: Forbes now thinks Carly saved HP
. . . HP regains throne as top PC maker
2007: Ex-HP CEO Carly Fiorina hired by Fox News
2011: This article, which suggests, again, that Fiorina was perhaps making the right moves all along.
As much as the geek crowd hated to see what was happening to HP, it definitely that perhaps Cloud Computing and handhelds were the go too thing after all and that the execs that fired her just couldn't see The Big Picture. One for sure though, is as sad as it was to see the engineering innovation go, it's even sadder to see the company struggling to recover from the series of "oops" that sent it into it's current downward spiral.
The eternal struggle of good vs. evil begins within one's self.
In this current down economic climate (referring to the time period 2008 to 2011) neither boards of directors, nor management nor the government looks good.
Sort of incidentally (following on a college education that had about 4 semesters of American history and American culture classes) I have been puzzling about the American corporation and reading the occasional book on the subject. The first thing I feel these books show is that American corporations are creatures caught within the economic and cultural currents of the time. Sorry but I am naming the titles from memory.
The last book on the list is The Decline and Fall of the American Auto Industry, published around 2009 a few months after the General Motors bailout. Here is a book that principally tells the story of the decline of General Motors Corporation with vignettes of decisions and policies forced upon top management and the GM board of directors from about 1970 down to the bailout. These are the years where General Motors could do everything except build a good small car. At the board of directors level, the choices kept being matters of avoiding the more awful.The board of directors finally wound up with a General Manager whose speciality was promising things would be better. The problem that was never ever solved (and still isn't solved in my opinion) is how to make a 4 cylinder engine as good as the 1700 cc Honda (and keep it in production even if it costs a few dollars more.). No board of directors can solve that problem.
The next two corporation books are: My Years with General Motors by Alfred P. Sloan (mid 1960's) and the 1950 vintage classic about General Motors, The Concept of the Corporation by Peter Drucker. These books are the classic duo about a big corporation and a really gifted and eloquent Chief Executive Officer. The only problem is both books were written in the middle of a 40 year richest in the world expansion of the mass production automobile. In the present down economy,the same high quality people sitting on the Board and occupying the top management simply do not look as good... no matter what they do.
Regarding your wish for a new way of doing business, I would say look back at the 1980's... The Regan Presidency Years... where job security began to evaporate. That was the era when the conglomerate corporation began to operate. This is when the process of buying up smaller corporations and doing obscene things to their balance sheets and business plans began. A social history of this era up to the present (not focused very clearly on Corporations) is The Great Inflation and It's Aftermath by Samuelson.
So one way of looking for a new way of doing business is to ask, how can we change the economy of scale back so that stable, quality, relatively low profit and low debt Corporations are not subject to being bought up, stripped of their cash, move the manufacturing to contract offshore factories, loaded with debt and resold on the stock market to investors. Recent corporations worthy of study are Sunbeam, Mr. Coffee and Kidde (fire extinguishers).
Books recommended in the parent comment:
The Decline and Fall of the American Automobile Industry (1983)
The Decline and Fall of the American Automobile Industry (1983)
My Years with General Motors by Alfred P. Sloan (1964)
My Years with General Motors by Alfred P. Sloan (1964)
The Concept of the Corporation by Peter Drucker (1946)
The Concept of the Corporation by Peter Drucker (1946)
The Great Inflation and Its Aftermath: The Past and Future of American Affluence (2008)
The Great Inflation and Its Aftermath: The Past and Future of American Affluence (2008)
Many years ago, I realized that the larger and more layered a hierarchy is, the more insane it is. As TFA and most posts have pointed out, the board does not do what a board should do. The President/CEO is generally (generalizing, here) outward-facing, mostly concerned with how the organization is perceived. Vice-Presidents are... well, vice-presidents - some are good but many are either competing to be the next President or are too scared to do anything that they are not already doing. Middle management are often simply paper shufflers, maybe trying to do a good job but not important enough to really change anything. Lower managers can actually see what is happening in the company, but their view is so at odds with the view of upper management that they are powerless.
In short, those on top don't know what is happening, those close to the action are ignored by those at the top, at best, or act only out of fear or ambition, at worst.
Interesting story: I was a "super-consultant" (read: contractor) at a large, old tech company in Texas back in the '90s, working as part of a team to install a major system. I was working on some bit of code, realized that the approach I was taking was not going to work, and said something like "This is never going to work!". Seconds later, just as I was starting a different approach, the girl in the next cubicle - an employee and my main contact - called me into her cubicle and... said basically that she could not believe this, that my behavior was totally unacceptable... Her reaction would have been appropriate if I had stood on my desk and yelled "This stupid project is never going to work and this stupid company should never have started it".
Short version: expressing any doubt about anything in the company, even the bit of code I had been working on for ten minutes, was totally forbidden.
The message seemed to be "You are happy about everything that happens in this company or you are fired."
"When the going gets weird, the weird turn pro" -- HST