CEO Blogger

If the Rathergate forgery had been better

I find the influence of the blogosphere a fascinating topic. So this post caught my attention. The author asks, what would have happened if the forgers of the “Rathergate” letter had used a real period typewriter instead of computer and a laser printer?

The author of the post has a very long argument about how the forgery would have eventually been found out. But I’m going to very succinctly disagree. Without a smoking gun, the forgery meme would never have been bought into by many people. CBS would have had plausible deniability. Dan Rather would still have his job.

One commenter put it like this:

Hell, go one step further: what if the documents were legit?

We would have had the devastating revelation that Bush was the son of a rich and powerful man who benefited from Dad's connections.

If the son of a rich and powerful man with connections to either of the two political parties came to my company looking for a job, I assure you that we’d give him some extra special treatment. That’s just the way the world works. You need to have friends in high places.

Private accounts, good for CEOs

Professor Bainbridge says that he’s looking for advice on Social Security private accounts.

Well, I’m in favor of private accounts because they are good for CEOs.

First off, I presume that much of the funds invested in the private accounts will go into the stock market. This will have the effect of re-inflating the bubble that partially burst back in 2000. And that will be good for CEOs because nearly all of us have options that are out of the money when given to us.

Secondly, there is the matter of corporate governance. Theoretically, the CEO is responsible to the Board of Directors who are elected by the shareholders. But in most large corporations, the shareholders are too spread out to have any strong influence over the BoD. The biggest shareholders are mutual funds, and mutual funds are real softies when it comes to their relationship with management. Usually, the companies that own the mutual funds hope to sell us investment banking services or pension fund/401k services, so they suck up to management rather than challenge us.

Private accounts will increase the proportional share of corporations owned by mutual funds, which means that a smaller percentage of the stock will be owned by the type of shareholders who might want to rock the boat. The result will be higher salaries and better job security for CEOs and senior management.

Eason Jordan and the blogging phenomenon

If you read my first post, you'll see that one of my stated purposes for starting this blog was to see what this blogging phenomenon is all about.

I intend to write a much longer post about what I've learned, but I want to point out a story which demonstrates the blogosphere's strangely large influence considering it's lack of readership.

CNN fired it's chief news executive Eason Jordan (at least I assume that "resigned" means he was fired), apparently because bloggers have been complaining about a statement he made at a public forum.

Law professor Eugene Volokh writes:

This looks like a classic example of the power of blogging: Though many of Jordan's critics have been politicians and journalists, as best I can tell the mainstream media initially paid little attention to the story. In an earlier era, it may have died from lack of attention, if it weren't for the bloggers' talking about the story, and making it hard for people to ignore.

Volokh's post is extremely self-congratulatory, but he's probably correct that were it not for blogs, Jordan wouldn't have resigned. So blogs do have a surprising amount of influence given their small readership.

It's easy to say that the blogging phenomenon is extremely overrated, yet it does have the power, in some cases, to keep alive a story that otherwise would have died.

Carly Fiorina

Because I’m a CEO, people seem to think I have some sort of deep wisdom related to HP CEO Carly Fiorina being fired. So they keep asking me about it.

First of all, I’d like to point out that it’s highly unusual for people to even know or care if a CEO is fired. If Lee Raymond were fired, people wouldn’t be asking me what I think about it, they’d be asking “who’s Lee Raymond?” In fact, Lee Raymond is the CEO of Exxon Mobil, which based on profits is the biggest U.S. company. Lee Raymond is a name that everyone should know, but they don’t.

Carly Fiorina belongs to a very short list of CEOs who are household names. Maybe only Jack Welch, Michael Eisner, and Bill Gates have better name recognition. I have to wonder if the self-promotion required to become so well known took time away from her more important job of running HP?

The obvious reason she was fired is because she gambled on a big merger between HP and Compaq, and lost. The combined company experienced a predictable clash of cultures and failed to realize any synergies. She championed the merger, it didn’t work, she got fired.

Carly surely knew that most big mergers fail, yet she pursued that course anyway. I think the HP Compaq merger was especially prone to failure given HP’s unique corporate culture.

In my opinion, Carly’s really big failing was in not having a COO. Having a COO you can trust is extremely important to being an effective CEO. The COO allows the CEO to focus on more important external issues such as selling your company to customers and investors while the COO focuses on operations.

A good COO would be doubly important to Carly because she was clearly extremely externally focused—how else could she become so famous? And Carly came from outside of HP’s industry, and she is also reported to have had a weak operations background, making it that much more important that she have a COO from within the industry with a strong background in operations. But Carly apparently had too much ego to share even part of the glory with a COO.

(I thought I had written before about the importance to the CEO of having a good COO that you can trust and rely upon. I run a much smaller company than HP, but nevertheless I know I wouldn’t be as effective without my COO. I looked through my blog and see that the COO post isn’t there—that must have been the post that was eaten by my computer.)

What counts is who gets fired

Rob at BusinssPunding writes the following about The Apprentice:

I'm not sure the tasks they are doing are a good measure of business acumen. There are too many variables that may affect the outcome that the candidates cannot control. For instance, when they have a restaurant challenge or a apartment/motel remodeling competition and the final numbers are close, that doesn't mean one group did a better job.

Well I would certainly never hire an executive based on a contest like this. Nor would anyone. The primary purpse of the contest is to provide entertaining television.

But to give the contest a little credit, no matter which team wins or loses, someone gets fired. Each week, Donald Trump gets to fire a weak candidate until only strong candidates are left. So it doesn't really matter if the better team loses, it still helps Trump to narrow down the field.

Career advice for a college student

A college student sent me the following email:

I am a college student at *** in *** who is majoring in Accounting, Finance, and Management. I stumbled on your blog recently via carnival of capitalists and I though I would ask your advice regarding careers. I am at a critical stage in my education where I am being forced to choose what career path I want to pursue, at least upon graduation (typically, the best students intern at the company they plan on working for the summer before their senior year and get job offers that August). ... The thing that I have always wanted to do is run a company or at least a profit center (I guess you have to start small). The problem is that obviously, no one hires senior management right out of college. That is why I will inevitably end up heading into the finance field, either in public accounting, investment banking, consulting, or private accounting/finance (depending on what the company calls it). What I would like to know is how does a person transition into upper management? Where do companies get their COO's from? I know that the "old" way is to have someone who worked up through the ranks, from the assembly line to the top, but that does not seem to be the case anymore. ... Finally, what advice do you have for someone who will be graduating from college in a few years (I'm graduating in 2007)? How can I be sure to get noticed and put on the "fast track"?

First off, I commend you for being interested in senior management. So many kids these days have impractical ideas about becoming actors or artists. I'm glad to see your head is grounded in the realities of our economy.

But giving career advice is always a dangerous proposition because I don't want to steer anyone the wrong way. There is no simple answer to any of these questions. In all cases, the answer is "it depends."

It is not true that people no longer move up through the ranks. In fact, moving up the ranks is the surest path to a senior management position, and this is especially true for the COO position that you ask about. The COO needs to know about the industry in order to effectively manage the company's operations.

Don't overlook starting out in sales. Sales is very important to most companies, and it's quite common for the CEO to have a sales background.

If you start out in public accounting or finance you will be headed towards the path of being a CFO rather than a COO. People who start out in consulting or investment banking commonly stay in those industries their whole life.

Is there a "fast track"? Yes and no. Certainly many people wind up derailing from the track somewhere along their career and get stuck underneath a ceiling that they never rise above.

One warning I need to give you is to not expect things to come easy. No one will hire you just because you have a college degree and no one will promote you just because you put in your two years. (There's an exception: if you have top grades from a school like Harvard then certain companies will hire you just because of your academics.)

One tactic you may want to consider is positioning yourself now to get an MBA from one of the top business schools. It has to be from one of the top schools, because otherwise MBAs are a dime a dozen. An MBA from a top school is a big career booster, but remember, it's still not a guarantee of anything. There are COOs without college degrees at all, and there are MBAs who are driving taxicabs.

Dick Grasso's $240K "secretary"

There have been articles in the NY Times and WSJ about how Dick Grasso's secretary was paid $240,000/year. The purpose of this type of reporting is to arouse anger in the masses. I just love this reponse by strategist:

Is there any wonder why so many people hate the uber-criminal-rich and their cohorts? I cannot f'ing believe Grasso paid the assistant that much cash. I honestly think there is something going on behind the story and once the media gets some balls, we'll all know the truth behind the outrageous sum of money.

That's exactly the kind of reaction the newspaper reporters were hoping for. But I'm not terribly surprised that Grasso's executive assistant was making that much money. Grasso himself was making about $25 million/year,  so his assistant was making only 1/100th of his pay.

I also notice that the papers are trying to demean the job by calling her a "secretary." The proper politically correct term these days is "executive assistant." It's not an especially well kept secret that the CEO's executive assistant is one of the best compensated employees at most companies. It's true at my company where my assistant makes six figures. But we try to keep this a secret because we don't want the regular employees to be jealous and resentful.

As the most important and best compensated employee of the company, the CEO needs a highly qualified assistant to make his job more efficient. If you want to be effective as a CEO you need the best assistant you can find.

My assistant screens my phone calls and emails, proofreads a lot of what I write, writes letters, emails, prepares Powerpoint slides, keeps my schedule, and cheerfully brings me coffee and picks up my clothes from the dry cleaners. The executive assistant needs to have excellent writing skills and computer skills. Her phone manner needs to be impeccable because she takes phone calls from the company's most important customers.

Grasso's assistant was a law school graduate. If she was working as a lawyer and making $240,00/year, no one would think anything was unusual, but because she was using her skills to be an assistant to a top executive, which is a job at least as important to our economy as a lawyer (we probably have around a million lawyers in the U.S.), her salary is criticized.

Professor Bainbridge suspects (as does Tom) that the whole Grasso investigation is just about Eliot Spitzer padding his resume to run for governor of NY. I agree that Spitzer's career ambitions cast a dark cloud upon his publicity seeking investigations.

Too much customer service

At BusinessPundit.com there's a story about a couple that returns a two year old gift to Bed Bath & Beyond and gets the full money back for the gift. Then the story becomes more complicated, and somehow they wind up screwing up the new sheets they bought at BB&B (not clear who's at fault) and BB&B once again gives them more sheets.

The author of the post lauds this as an example of how excellent customer service increases profits. He writes, "they will probably make more off the future sales from these satisfied customers than they would have saved from refusing to take the sheets back."

I would agree 100% that keeping your best customers happy is crucial to the profits of any business. But not all customers are deserving of such treatment. Most businesses have a subset of customers that they actually lose money on.

I highly recommend the book The 80/20 Principle, which explains (among many other things) that 80% of profits come from only 20% of customers. I suspect that most retail stores lose money from the type of customer that returns two year old sheets.

The problem with implementing a policy of not servicing your worst customers is that you can't really trust low level employees to make that distinction. And you don't want the word to get out to your customers. Therefore a company is best served by erring on the side of too much customer service, leaving decisions to cut off money-losing customers to management.

Nevertheless, the problem customer is something that every high level manager needs to be aware of if the goal is to maximize profits.

State of the Union Address

I thought that Bush did a great job with the State of the Union Address. It takes a lot of guts to talk about Social Security, it has been called the third rail of American politics.

The most brilliant moment of the evening was the spotlighting of the parents of the soldier killed in Iraq, who were fortuitously seated next to an Iraqi woman whose father was killed by Saddam Hussein's secret police.

Bush one-upped the Gipper on that one. Probably why blogger Diplomad said that "Ronald Reagan couldn't have done it any better." Taegan Goddard wrote, "President Bush took Ronald Reagan's 'heroes in the balcony' to a new level." OkieBoy says, "Dubya is about as good as it gets."

But Libertarian Girl wrote, "I started losing attention because I see right through that phony Oprah Winfrey stuff."

What Libertarian Girl forgets is that we live in a democracy, and people like Libertarian Girl, who are intelligent and logical about things, are in a minority at the voting booth. Bush has to sell his speech to the average American who is probably an Oprah Winfrey viewer.

Let's give Oprah Winfrey credit for being hugely successful doing her thing. I think her net worth is in the nine figures, making her an order of magnitude richer than yours truly.

I think that Bush has benefitted from attending Harvard Business School. He doesn't just think like a politician, he also thinks like a CEO. A CEO knows that the best products will fail in the marketplace if the marketing and sales aren't there. Most students of business are familiar with the story of Sony Betamax. Betamax was the technically superior product compared to VHS, but it failed on account of poor marketing.

Selling ideas is not entirely unlike selling VCRs. The scene with the parents of the soldier did a better job of selling Bush's foreign policy than any words he could have added to his speech.

Via Captain Ed, I learned from CNN that the post-speech poll had a very favorable reaction from the American public:

Overall, Bush got very positive or positive reactions to his speech from 86 percent of respondents, his best numbers since the State of the Union address he gave January 29, 2002 -- just four-and-a-half months after the terrorist attacks of September 11, 2001 -- when 94 percent of those polled gave him positive marks.

IT propaganda

Via The Carnival of the Capitalists, I found a series of posts (Thinking WiKID Thoughts, Emergent Chaos, Financial Cryptography 1, Financial Cryptography 2) about a study on "the economic cost of publicly announced information security breaches." According to WIKID, the study says "that a firm suffering a breach of 'confidential information' saw a 5% drop in stock price."

It's hardly much of a surprise that a public release of bad news causes the stock price to go down. Every CEO of a publicly traded company knows this, and it's a basic rule of efficient markets that stock prices adjust to reflect new information about a company.

But I also feel that this study is yet another example of IT propaganda. The IT industry is always trying to convince those outside of IT that IT matters, that if you don't spend enough money on IT it will hurt your company.

But most of us are not convinced. IT is not a profit center, it's a cost center. Once your IT department grows past the minimum size needed to maintain your company, additional money spent on IT is a loss. But IT is always trying to shake down extra unnecessary money in order to bleed away profits.

I really can't recall reading any company news releases about IT security breaches, but I certainly recall reading news about companies writing off tens of millions of dollars after an "investment" in new enterprise software failed and was abandoned.