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Wanting a Job Too Badly: A Dark Lining to a Silver Cloud

A report I saw claimed that CEOs appointed after 1985 are three times more likely to be canned than those hired pre-1985.

Bravo!

That is, scrutiny of the Big Cheese is at an all-time high … thanks to "raiders" like Boone Pickens and large shareowners like Calpers.

Get the job done … in a hurry … or get out. In fact, some have called it the era of "one strike and you’re out."

Bravo redux. Sure beats boards stacked with the CEOs' golf pals.

But …

All silver clouds seem to have dark linings.

That is, there are apparently no limits to which CEOs won't go to pump up … and then try to keep up … share prices.

Which, of course, brings us to Enron. Or Tyco. Or UAL. Or, literally, a hundred others.

Enron had a great business model. (It, if not the firm, will persist.) Problem: It was such a good/original model … at the exact right moment (Internet bubble, Internet reality of plunging "transaction costs," benefit of the doubt on Wall Street, genuine boom, Age of Intellectual Capital, Age of De-regulation, etc.) … that the world of financiers and media went gaga.

Up … up … up … up goes the stock price. Chairman Ken Lay is famous (in Very High Places), CEO & bus. model inventor Jeff Skilling is "the genius," so revered/touted that he can get away with calling sacred W. Street analysts "a.holes" -- and get another share price boost for his troubles.

Tyco acquires … and acquires … and gets the rep as … The Next GE. Share price soars … and soars … which spurs more and more acquisitions bought with "cheap money." Meanwhile, truly crappy underlying operating performance is brushed aside.

UAL … and all its kin … rent their airplanes from, essentially, shell organizations. Why? Makes the Balance Sheet shine. I.e., virtually no debt.

So on the one hand, we hold CEO toes … all 10 of 'em … to the fire. But smart lads (and they're almost all insanely competitive "lads") that they are … they quickly figure out how N.A.G./the New Accountability Game is played.

It's played by doing damn near anything to keep the share price soaring.

(Stories abound of companies, at the end of a quarter, jamming millions of dollars of "sold" goods onto rented trucks … which circle the block as the quarter ends … so that the "travelin' goods" can be "legitimately" booked as "invoiced sales." No shit.)

Mix in a real (as well as perceived) boom … and the requirements to be "average" go up and up … and up. Which adds more pressure to do damn near anything (scratch the "damn near"?) to bump the share price more up, steeper up.

Add in, for the hell of it, a (truly) New Economy, based on intangibles ("intellectual capital") rather than tangibles ("smoke stacks"), and you have an absurdly volatile mix.

CEOs have been pulling fast ones approximately forever, in order to spruce up the Bottom Line & the Balance Sheet. (Small business owners, too, hardly go out of their way to tell their bankers bad news.) But the last decade, and perhaps the Junk Bond Decade before it (with its emphasis on "pro forma" future earnings, not demonstrated past earnings), have taken The Game -- and it is a Game/THE Game -- to unimagined heights. (Depths?)

Which brings me to those CEOs who love the job … and its $$$$ … and its perks … and the adulation … too much.

"Sprucing up" the P&L/B.Sheet then edges over the line into, legal at the margin or not, something akin to fraud. Moral fraud, if not illegal fraud.

Oddly, some of the best have avoided it. GE is not above a little "sprucing up." On the other hand, GE is perhaps the nastiest "performance culture" I’ve ever run across. Deliver … in hard dollars … or "hit the road, Jill." (And the Testiest Internal Auditors imaginable are there to keep you straight. Thousands of them.)

Or … take retail (in general). There's only, as far as I can tell, one measure that matters to … Those Who Watch. Namely … SAME STORE SALES. That is, the sales of the same store (not some recently acquired store) … a year ago at the same time & place. No doubt, there are a jillion ways to pad this or that … but the measure is pretty immune to screwing around. (I think.)

Geoffrey Colvin pens a thoughtful column in Fortune. A few weeks ago, he offered some good news … re this column of my own. He claimed (based on some serious analysis) that the long-term winners in the Shareholders' Value Race practiced two disciplines in particular. First, they'd suffer several quarters of depressed earnings … in order to support a TGBRP … Truly Great But Risky Product. And, second, they'd EXPENSE the TGBRP … which compromises immediate earnings … but which signals … unmistakably … support for the risky/scintillating venture.

Bravo.

So … there it is. All I know. IF YOU LOVE YOUR JOB TOO MUCH -- even if you’re a CEO -- you may well do stupid/immoral/illegal things to … HOLD ON.

For shame.

Tom Peters/Haena, Kaua'i HI/02.12.2002

Tom Peters posted this on 02/12/02.
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