The Chief Executive: Reputation Beyond Charisma
The author opens with the example of Michael Eisner of Disney: Eisner rose to stardom in the corporate world because he led Disney through a few decades of success, then was quickly vilified when Comcast made a hostile bid for the firm in 2004. The notion that Eisner was sole to blame for the firm's failure was regarded as unwarranted; but then, so was the notion that Eisner was sole to credit for its previous success.
Generally speaking, the degree of influence held by a CEO has become grossly overestimated. This misconception is held not only by the uninformed public and the media, which has done much to mislead them, but even by the employees and investors of corporations. The notion of the CEO as an all-powerful entity has even been espoused in academic circles.
As a result, shareholders seek to oust their CEOs and reform their board of directors, believing it to be a quick solution to a temporary problem. The recent years of economic crisis have elicited many such reactions, to the extend that CEO is often seen as a short-term position across all industries.
Clearly, a serious consideration of the CEO's job and responsibilities is in order - not a reconsideration or a reinvention, but an adjustment in perspective. Specifically, the board and executives of a firm seek to achieve the long-term success and development of the firm. They cannot get involved in the day-to-day management of its affairs, not provide solutions to many of the problems companies must address. Such tasks are delegated to the corps of employees, with direction from the top, but not to the degree of micromanagement.
This chapter seeks to explore the functions of the chief executive. Even at that, it is a gross overestimation of what the CEO is personally capable of doing, and many divisions are delegated to the executive committee and senior management team. As such, the discussion that follows pertains to the management of a firm, under the direction of the CEO, rather than the CEO as an individual - and because a CEO may choose to retain or delegate different things at different firms, there is no single pattern to suit all. Neither is this intended to be a comprehensive examination of the role of the CEO, but a consideration of tasks and functions related to good governance that are specific to the senior management of a firm.
In any case, the CEO is a central figure in a corporation, in practice as well as theory. While he may delegate responsibilities, he is nonetheless the head of a team that he has very likely helped to assemble, and for which he will be held responsible.
In a basic sense, the CEO has a dual mission: first, he must design and manage the team of top level of managers in the firm. Second, he must achieve certain goals, perform certain tasks, and assume specific responsibilities.
(EN: Curiously, the author does not mention the CEO's fealty to the board of directors, as their link to the corps of employees, not consider that the duty of an executive is to execute the orders of the board. My sense is this is played down: a good executive does not give blind obedience to the board and ignore all other stakeholders, but I don't think that subordination to the board can be entirely ignored.)
Do Chief Executives Make a Difference?
It's only in recent decades that CEOs have attained celebrity status, such that their names are widely recognized by the general public. Previously, their names would likely have been unknown outside of their industry and their public exposure was limited to quotes in the financial press. Today, they are household names and make frequent appearances in the popular media.
It's not that they were poorly regarded - the respect given to a CEO was along the lines of that given to a doctor: he was recognized as a professional with an important role in the economy. Nowadays, they have become more like actors in terms of their public recognition and scrutiny by the tabloids. At present, their fame has scaled back a bit since the 1990's, where it was at its maximum.
As such, the role of CEO has become more complex for some, who seek to maintain their personal image on top of their duties within the firm. In other instances, the CEO has become a public spokesperson for the firm, with all the real authority delegated to an alphabet soup of other C-level officers (CFO, COO, CMO, CIO, an the like) who handle the operations but shun the limelight.
This has led to some confusion about what a CEO really does - not merely in the eyes of the public, but in the eyes of the board, the executive committee, and often the CEO himself.
The duties of a CEO tend to be limited to the long range: understanding the context of the firm in the market and drawing plans for the success of his firm over a broad period of time. The CEO who seeks media attention (or who is encouraged directly or indirectly by his board to pander to the media) tends to be too often dragged into the issues and situations of the day, and loses his long-term perspective.
It is also because a CEO looks to the distant horizon that elicits the question of whether his work actually makes a difference to his firm. Even a functional CEO is a generalist, not a specialist, who provides guidance to the organization and delegates the work that has a more immediate impact to his subordinates - creating the impression that they are running the firm and the CEO is not contributing.
(EN: This is akin to the perception of even first-level managers, who supervise the people who do the "real" work, and elicits the same question - the assumption being his team would continue without his supervision and guidance. The value he creates in planning the work and supporting his team is not noticed.)
The author also notes that the greatest attention is given to a CEO when a company is performing out of its normal bounds. Where a company is making a tremendous profit, the CEO may be recognized and when a company fails, even to a lesser degree, the CEO will likely be blamed - as in the media, an executive is more likely to be noticed for doing something wrong rather than doing something right. But under normal conditions, when everything is running well but not spectacularly, the CEO is invisible and the tremendous effort it takes to keep the company smoothly is not noticed.
A Chief Executive's Main Tasks
The CEO and his team are an essential element of corporate governance, in that they represent the interests of the board of directors and work to insure that the directives of the board are accomplished and the firm survives and succeeds over the long term.
Historically, leadership has been the task of the top executives. A strong executive committee can maintain a firm even in the presence of a weak board of directors - but a company with a strong board and weak executives is unlikely to have a future.
The author then considers some of the main "tasks and challenges" of a chief executive in the material that follows.
Embodying the Mission and Values
The mission statement for a firm is often written by someone who is no longer involved in the company, modified as the firm's ownership has changed hands, tampered with to support an executive or board member's personal agenda, and crafted to be appealing to shareholders or the media. As such, it has a tendency to be disregarded as boilerplate fluff that has nothing to do with the actual activities of a firm.
In order to function as a mission statement, to give direction to the firm and set the expectations of all who encounter it, the statement must reflect the actual mission and values of the firm. An in order to be regarded as anything but PR, it must be supported by the CEO and top management team.
The author seems to concede that a mission statement is not always descriptive of a firm such as it is, but such as it wishes to become - or better still, such as it genuinely intends to become, and toward which it is managed. Or it may not be a goal that can be achieved, but give the organization an sense of purpose in activities that will be necessary on an ongoing basis.
Living up to the mission, or at least being seen to ne earnestly in pursuit of the goals a company has set for itself, is "one of the pillars" of corporate reputation. The mission is "actualized" when it serves as a basis for discussion in making decisions, reinforcing not only the nobility of the mission, but the trustworthiness of the firm in upholding its stated values.
When a company acts in a way that harms a customer, employee, shareholder, or other stakeholder, it is likely to be acting in violation of its mission. This often occurs in order to make a short-term gain at the expense of the firm's reputation and long-term performance.
The author speaks briefly to the values expressed by a corporate mission statement, which should correspond to the virtues embodied by its employees. Being virtuous does not mean making the most efficient or cost-effective decision - anyone with a basic grasp of mathematics can do so - but instead it means defining what is right and proper and making a point of doing so, even when it is not the most profitable course of action. This is where most executives, and most companies, fail.
As the top employee of the firm, the CEO's behavior in regard to the mission sets a standard that others will follow: where his actions are seen to be in line with the mission, this grants credibility to both the mission and himself. Where his actions are out of order, those who witness this doubt either the validity of the mission or the reputation of the executive - or both.
As such, firms that wish to be regarded as reputable must carefully consider their mission and the values it embodies, and must then make a point of adhering to the mission they have defined.
Strategy
The duties of most employees incudes routine tasks that are done in order to accomplish objectives that have been set by the firm. Top management tends to the strategic work of setting those objectives and defining practices and procedures that employees will follow, with some latitude to make tactical adjustments in situations where the prepared plan is not leading to the accomplishment of the strategic objectives.
In setting strategy, the company's top management, under the guidance of the CEO, must manage the short- and long-term dimensions, managing contradictions and paradoxes, while seeking the course of action most conducive to accomplishing the firm's mission. Firms that do so elegantly are not only financially successful, but reputable and respected.
The author refers to Bob Eiger, who took over as CEO of Disney at a time the firm's performance was failing. His solution was a strategic change for the firm: to no longer rely on traditional franchises such as Mickey Mouse and instead seek to create new franchises and new platforms that would resound with the present marketplace in the way that Mickey resounded with older generations. This was not a departure from the mission, but a new idea for accomplishing it, and one that revitalized the firm. This example demonstrates how top management, especially the CEO, must have a long-term view of the firm that is not merely preserving the past nor continuing present operations.
Moreover, it is top management's concern to think long-term because no-one else will do so systematically. The employees at lower levels are competent in their work and can generally identify ways to improve what they are currently doing, but they do not have the vision or the authority to make significant, strategic decisions for the future of the company.
Said another way, employees make basic decisions in the context of a defined strategy - they decide how they can make products and serve customers with greater efficiency and effectiveness. In setting strategy, top management makes decisions as to what customers to serve. It does so not only to govern present activities but to define the activities in which it will be involved in the future.
Ultimately, the strategy describes the way in which the mission is to be accomplished and the values are to be demonstrated in action. It must provide some tactical latitude, and it must be flexible enough to adapt to changing circumstances, but it must always be focused on the mission.
Leadership Development
On its most fundamental level, a company is a group of people who work toward collective goals. An entrepreneur with an idea for something he can accomplish alone needs no company of people to assist him; but a company of people serves no clear purpose without a guiding idea provided by the entrepreneur.
Practically speaking: a company with nothing but capital in the form of money, materials, and equipment cannot accomplish much - it is an assemblage of things that does nothing on its own. These things only produce value when they are used by people - and in traditional thinking, too much emphasis is placed on the things and too little on the people.
Morally speaking: the acknowledgement of the value of people as employees us a reflection of the degree to which a business values people in any role (customers, investors, suppliers, etc.) and reflects the degree to which a firm respects, or fails to respect, individual freedom and personal dignity. The way a firm treats people is a central pillar of corporate reputation.
While the moral imperatives do not seem to have taken root at many firms, there is evidence that they at least acknowledge the practical aspects: that better people do better work, and that development yields a good return on the investment. The author points to the recent development of "universities" and "learning centers" within corporations that focus on talent development. In some instances, these universities are functional and teach employees both hands-on skills and philosophical perspectives on the business in which the firm is involved; in others, they are mere public relations props so that the firm can appear to be concerned; and in the worst of cases, they are propaganda mills.
If a CEO is to be held responsible, and rightly so, for developing the capability of his organization, he must develop the capabilities of the corps of employees. It is insufficient to merely use people for the skills they bring to the firm, but necessary to develop the skills that the firm requires of them. In the short term, a firm may persevere with unskilled workers, or depend upon other companies to train them - but in the long term, a firm must develop its own people.
A secondary effect, far more dramatic but far less important, is that people notice the way a firm treats its employees. Customers will shun a firm that acquires a bad reputation, to varying degrees. More importantly, it will experience a steady outflow of its most desirable employees while meanwhile becoming less attractive talented candidates upon who the firm relies to bring skills from outside that are not fostered within.
The author suggests that the human resources department must do the bulk of the work, but at the direction of management. That is, top management determines the skills that are necessary to the company's future, and human resources identifies and administers the training to develop those skills in the workforce.
Of particular interest to the firm is developing the company's next generation of leaders: while academic programs in business convey basic skills in a number of disciplines, they are historically incapable of developing critical abilities such as critical thinking that are essential to success in executive positions. Consequentially, many firms seek to fill executive positions from outside the firm - hiring in talent that has been developed elsewhere because they do not develop their own employees to advance through the ranks as was once the practice.
Resource Allocation and Investment Decisions
A critical decision made by top executives determines how resources will be allocated within a firm: a decision to act without the resources necessary to take action is functionally meaningless. Whether an initiative is not funded at all, or provided insufficient funding to be effective, is immaterial.
The practice of making resource allocations strictly on financial criteria (seeking those investments that produce the greatest return) fails to consider whether the decisions themselves are aligned with the company's objectives and strategy. It also supports the perspective that financial results are the objective, rather than the result of achieving an objective.
Consequently, a firm that selects investments and allocates resources based on their return may find itself working against its stated purpose, in a random and unpredictable manner, which will ultimately damage its esteem with stakeholders.
The firm must be financially sound overall, recovering at least as much as it spends, but must regard finances as a resource that is used to pursue goals: an individual idea may be financially rewarding, but not in line with the mission of a given organization.
In other words, resource must be allocated based on the needs of the entire firm, not considered in isolation. Before profitability is considered, firms should first screen activities according to their alignment with the mission, and then by considering the null hypothesis (the consequences of not funding an initiative). Any idea that does not satisfy both conditions, regardless of profitability, is not a worthwhile undertaking for the firm.
Operational Efficiency
The board should refrain from any involvement in day-to-day operation of the company. And while it is arguably the realm of the executive committee, most daily operations should be delegated to lower levels of management so that top management can remain focused on long-term goals. While long-term performance is the result of short-term action, managing the minute details does not guarantee success on the larger scale.
Even so, operational efficiency is cited as a strategic advantage for many firms. Efficiency primarily gives firms a cost-advantage over competitors who spend more budget to accomplish the same tasks, and in some instances service efficiency (speed) is desired by the market.
(EN: Much of what the author says on the topic is fairly well-known, and there does not seem to be a connection to reputation, so I have skipped a few long passages.)
In regard to reputation, operational efficiency is a means of manifesting the company's mission in everyday tasks - it means being good stewards of the resources of the firm, and showing an earnest interest in accomplishing its goals in an efficient manner. A firm seeks to do best that which matters most.
Organizational Design
The top management of a firm also designs the organization: it groups its operations by function, product line, geography, or otherwise. This organizes the work to be done, sets goals, and measures achievement. More significantly, it splits the organization into business units or sub-enterprises that can be more easily managed by lower levels of management.
(EN: This again becomes considerations from a functional perspective with little connection or reference to reputation.)
One consideration, which is arguably related to reputation, is ensuring that a system of mutual support is pit unto place to ensure that business units are collaborating rather than competing, and defining goals for units tat reflect and support those of the organization.
There's also a note that the manner in which control is exercised across business units can reflect or discredit the organization's culture and values. In particular, the control systems help establish trust between employees and the firm: where each person is aware of his responsibilities and has sufficient authority to accomplish them, the organization as a whole is efficient and effective. Punishment and reward of employees is also called out, but scant detail is provided.
Some mention is made of ensuring employees do not become lost in the machine: they understand the mission of the organization of a whole and the way in which they support it - not merely their role in the context of their department.
Some Working Guidelines for the Board of Management
The executive council of a firm is a team, lead by the CEO, whose goal is to contribute to the long-term success and survival of the firm. While the team may have certain values, simply having values does not make them effective. The author discusses some of the additional criteria that are essential in guiding the firm effectively.
Teamwork
There are some vague remarks about collaborating rather than competing and being a group rather than a collection of individuals. Of importance is that the CEO is a coordinator of this group, and the other members are not merely an audience, but active participants who contribute to the discussion.
Another standard bit about having an open discussion, and disagreeing behind closed doors, but ultimately agreeing to the decision of the group and supporting it afterward.
This is especially important for executives because conflicts and disputes among them are not a rift between two individuals, but between two business units, with significant and broad consequences to the firm.
Collegial decision making
The chairman leads the executive committee, and given his position he will have some natural influence in their decisions, but his primary function is to ensure that the matters are considered and debated in an orderly and open manner to ensure that the expertise of all committee members is applied.
Where the committee of executives is merely an audience at which the CEO holds court and hands down orders, the value of their diverse knowledge and expertise renders no value.
The author mentions a few technical matters - primarily that the decision-making process is most effective when the issues are known in advance. The agenda should be published well in advance so that the participants can come prepared to the discussion,
The alternative, where the committee is ambushed and has no other information than what is presented in the meeting itself, leaves them blindsided and requires them either to delay a decision until they can do additional research or make a decision based on partial and superficial facts.
The determination of which issues should be reviewed by the committee should also be clear: it is a limited number. Anything that could be done by a single member needs no committee review, merely a discussion with the CEO. Anything that can be done by a small number of members working together might be a smaller meeting between those individuals and the chief.
Accountability
The primary obligation of the executive committee is to report problems, solutions, and results to the board, employees, shareholders, and other stakeholders - in accordance with the company's obligation to each party. This necessitates transparency of information and decisions.
For example, most of the decisions made by the board will be based upon the information and recommendations of the executive committee, which identifies opportunities to take action. The quality of the board decisions depends on the depth and rigor of the preparatory work done by the committee.
The executive committee also reports information downstream to the employees, so that they understand the plans that they will execute. Ideally, employees should receive this information internally before they find out by other means.
Transparency of information does not mean that all information is disclosed. This is undesirable for a number of reasons. Its obligation is to report the key issues and relevant details after a decision has been made, such that the decision is understood. The explanation of rationale is required to maintain trust and dispel suspicions about the motives of the committee.
Efficiency
The legitimacy of power relies on two pillars: the source of power and whether it is exercised prudently and effectively. To satisfy the second criterion, the executive committee must be efficient in its work.
One method of efficiency is in doing only that which is needed: the committee should not involve itself in issues that would be most effectively and appropriately be handled by other groups either delegating or escalating as appropriate.
Another method of efficiency is in focusing on objectives and measuring results: where the committee discussions do not lead to a decision, or where the decision does not have a measurable impact on achieving the firm's goals, it is pointless and wasteful.
In so doing, the board not only maintains its esteem and accomplishes its purpose, but its operation also serves as a model to other working teams within the organization.
Global, integrative perspective
The function of the executive committee is not merely to focus on matters internal to the organization, but to take a broader view of the organization in the context of its market, its nation, and the global community. It is also internally integrated, in that the perspective must not be limited to a certain function or business unit, but to the organization as a whole.
This largely derives from the theory of good delegation: a decision or action on a smaller scale can and should be delegated to the appropriate level of the organization. The CEO and his committee is the level at which decisions affecting the organization should be made, and decisions that are lesser in scope should be delegated.
It also follows that because decisions at this level will affect many stakeholders, the impact of a decision on all affected parties should be weighted in the decision - a benefit to one may be a detriment to another - and the impact should be considered over the short and long term. This will require management to consider paradoxes and contradictions between the different parts of the company involved and the different stakeholders affected.
Some Final Thoughts
This chapter has explored some of the challenges and responsibilities of executives, focusing on the CEO as the ranking executive within a company, from whom all other ranks of executives derive their responsibilities and the authority to accomplish them.
Some theories suggest that regulations and legal reform are necessary to improve corporate governance and reputations; others make the case for a radical change in the board of directors. Bot have influence over a firm, but it is the author's argument that the executive staff has the most central role in making effective change: they do not specify what the firm should do, but coordinate the activities necessary to actually do it.
It is not sufficient for an executive to implement changes and get things done, but to consider whether the changes and activities have a positive impact on the firm and all its various stakeholders - and when necessary, to question the orders handed down to them from the board and regulators when such directives are unfeasible or ill conceived.