- This writer offers telling insights into company failings, reports Philip Augar.
Alfred Sloan was the first CEO to make it to the cover of Fortune magazine and that was not until 1963. By then, big business in America was 100 years old and CEOs were about to become cult figures.
Their compensation surged 1,000% in three decades, taking it to 500 times the pay of the average worker. Politicians were supportive: Bill Clinton dubbed WorldCom's founder Bernie Ebbers 'the symbol of 21st-century America', Stephen Byers, a hard-line Labour minister for trade and industry, advocated world-class pay for British businesspeople in 1999: 'We accept such an approach in relation to sports stars, so why don't we adopt the same attitude for directors?'
Then came the fall: Enron and WorldCom went bust, and 250 big US companies restated their accounts in a single year. The CEOs parachuted out with their reputations in tatters but their packages intact. Previously untouchable icons such as Jack Welch and Sandy Weill had to endure the wrong sort of headlines. The revisionists, of whom Gideon Haigh is one, got to work.
This book has three aims: to trace the rise of big-company CEOs, to assess how important they are to company performance, and to question their remuneration.
The conclusion is that they are overrated and over-paid: 'Paying outsized sums to CEOs is not simply socially offensive, but intellectually difficult to justify.'
Most of the book deals with the rise of the CEO and is a readable and well-paced account, centred on America 'because it is, as Dean Rusk put it, the fat boy in the canoe: when it moves, all must adjust'. Significant figures such as Rockefeller, Henry Ford and Alfred Sloan are placed in context and brought to life by some nice anecdotes, such as the day Henry Ford fired all the firm's accountants because 'they're not productive. They don't do any real work. I want them out of here today.'
Moving into the second half of the 20th century, Haigh covers the conglomerate era of the '60s, the rise of shareholder value in the '70s, leveraged buyouts in the '80s, and the dot.com bubble and corporate excesses of the past few years. The book is good at telling us who got to the top, how much they were paid and what went wrong. The section on brand-name CEOs unfamiliar with their industries is particularly revealing. Bernie Ebbers, for example, boasted: 'The thing that has helped me personally is that I don't understand a lot of what goes on in this industry.' A symbol for corporate America indeed.
If we are left with a clear idea of what makes a bad CEO, we are less clear on what makes a good one. Haigh believes that 'conjectures about what makes a successful CEO have an irritating habit of collapsing in the face of the eternal exception'.
But, in fact, there is a lot of convincing academic research on this subject, including the work of someone the author quotes: James Collins, whose central findings in Good to Great do much to answer the question.
It is an unusual lapse, for Haigh weaves secondary material skilfully and is well acquainted with the work of top business writers, Harvard Business Review and American business magazines. Indeed, at times he is so concerned to cram in the supporting evidence that he crowds out his own opinion.
He favours soft-edged, long-term capitalism, believing that shareholder value has gone too far and, quoting Drucker, argues for the existence of the company in its own right. He makes a good case on the principal/agency problem, arguing that options are not the way to get managers to think like long-term owners.
'It's arguable, in fact, that the CEOs retro-fitted as owners during the 1990s failed not because they didn't act like shareholders, but because they did ... The practice of management became contaminated by the ethos of investing: bosses decided that in an equity market environment where everyone looked after their own interests first, they should do the same.' It's a concise and telling comment on the age.
Haigh modestly describes his book as an essay, and it has no index or footnotes, supposedly because the publishers regard it as a good read rather than a work of reference. In fact, it could be both and serves to whet the appetite for more from this particular author.
- Philip Augar, who ran the global securities businesses of NatWest and Schroders, is completing his third business book for Penguin.