David Brooks on CEOs

According to David Brooks, boards of directors are selecting the wrong kinds of CEOs:

Steven Kaplan, Mark Klebanov and Morten Sorensen recently completed a study called “Which C.E.O. Characteristics and Abilities Matter?”

They relied on detailed personality assessments of 316 C.E.O.’s and measured their companies’ performances. They found that strong people skills correlate loosely or not at all with being a good C.E.O. Traits like being a good listener, a good team builder, an enthusiastic colleague, a great communicator do not seem to be very important when it comes to leading successful companies.

What mattered, it turned out, were execution and organizational skills. The traits that correlated most powerfully with success were attention to detail, persistence, efficiency, analytic thoroughness and the ability to work long hours.

I have to start out by warning my readers not to always believe David Brooks when he presents psychology and sociology research, because he has been fantastically wrong on issues like genius and IQ and the black-white achievement gap, and that's just during the current month! But there doesn’t seem to be a political correctness angle here, so maybe the current article is truthful enough.

Right-wing economists and bloggers claim that CEOs make such a huge amount of money because boards are selecting the absolute best candidates for the job, and being the best is worth a lot of money when companies have billions of dollars in revenues. But we see the truth is that boards have no idea how to select the best CEO, and it’s likely that the traits needed to become a CEO aren’t what’s needed to be the best CEO.

The correct explanation for CEO pay is that it’s structural. The way corporations are set up, the guy who’s the CEO is able to transfer huge sums of money from other stakeholders to himself, regardless of whether he’s doing an especially good job as a CEO.

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In a comment, “athelas” writes:

Where in the article does it actually say that "boards have no idea how to select the best CEO"? Brooks presents his argument as counterintuitive to the average reader but that does not mean that boards are not looking for organizational talent.

Of course! Members of the boards of directors are geniuses with god-like understanding of business and economics. Too bad we can’t get these people to run the government. Things would get better.

But wait, they are running the government! Michelle Obama was a director of TreeHouse Foods, a public company traded on the New York Stock Exchange. How happy we should all be to know that the country is in good hands, as long as Barack listens to his wife.

She was paid $51,200 a year for her services. How do I get a cushy job like that?

Comments

[athelas]

Where in the article does it actually say that "boards have no idea how to select the best CEO"? Brooks presents his argument as counterintuitive to the average reader but that does not mean that boards are not looking for organizational talent.

[Rob]

"The correct explanation for CEO pay is that it’s structural. The way corporations are set up, the guy who’s the CEO is able to transfer huge sums of money from other stakeholders to himself, regardless of whether he’s doing an especially good job as a CEO."

Exactly. CEOs control their boards -- not the other way around -- unless the corporation has large percentage stockholders.

Perhaps we *do* need the government to set maximum pay for CEOs (only).

[Shawn]

Shareholders, instead of the board of directors, should determine a CEO's salary. The board of directors is essentially a kick-back club, although it is not blatant and apparent.

I propose that out of all the shareholders, 10% of them should determine the CEO's salary. These would be individuals/corps that have the most shares. Bubble forms would be distributed to them, and they would be able to pick a salary for the CEO; the median salary would be selected.

[Brutus]

CEOs are basically talented proles.

The real stars in business are the entrepreneurs--and that takes creativity and organizational skills.

[Brutus]

re David Brooks

Does anyone know how this blowhard became famous?

And he can't write a lick.

[HS: For the same reason that Maureen Dowd is famous: the NY Times decided to give them a column.]

[Richard Hoste]

"What mattered, it turned out, were execution and organizational skills. The traits that correlated most powerfully with success were attention to detail, persistence, efficiency, analytic thoroughness and the ability to work long hours."

Aren't all these just proxies for IQ + work ethic? Is that answer too simple for the PC elites?

Being a diversity hire or a charming person with a relatively low IQ would probably make you better at getting hired than producing real world results. If anybody cares enough to look up the data, see how minorities/women stack up as CEOs.

[BrunoBrazil]

The real stars in business are the entrepreneurs--and that takes creativity and organizational skills.

Yes, but the CEO´s are becoming the most prevalent element in the composition of rich people.

If an entrepreneur decided to hire a C-level to help him run his business and the candidates demanded typical C-level salaries, the entrepreneur would think the candidate is a mercenary. If the publicly shared companies instead were ones with a clear and present owner, he would think these salaries are absurd.

You don´t need to pay these outrageous salaries to have competent CEO´s. The business empires of Asia and Europe have lesser C-level salaries and are competent, as they created companies that are par or even better than the american large companies.

[Brutus]

Off topic, but amusing:

Look at my edit of Tom Perez's Wiki page. What we need in public discourse is more truth, less bullshit.

Thomas Perez
From Wikipedia, the free encyclopedia
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Thomas E. Perez is an American politician, consumer advocate, civil rights lawyer, and a major supporter of racial quotas.. He has served as Secretary of the Department of Labor, Licensing and Regulation (DLLR) since January 2007, when he was appointed to that position by Governor Martin O'Malley. He was nominated in March 2009 by President Barack Obama to head the Civil Rights Division of the Justice Department.[1]

In an article in the University of Maryland's Journal of Health Care Law and Policy, Perez argued for discrimination in favor of African-American candidates for med school admission on the theory that African-American med school graduates are significantly more likely than their white counterparts to provide care to poor, minority populations. However, Chavez points to evidence that affirmative action admittees are also significantly more likely to do poorly in medical school and significantly less likely to obtain important board certifications. To further lower admission standards for minority applicants, as Perez advocated, would produce even more underqualified doctors and reduce the number of well-qualified ones.

The result would be a form of medical apartheid in which minority patients increasingly would be served by minority doctors who lack solid credentials. This "would exacerbate the problem of poor health services for minority patients, not improve it." In addition, of course, Perez's regime would mean an increase in the number of candidates denied admission to medical school because of their race. The Civil Rights Division should oppose racial discrimination, not urge more of it.

At the time Perez wrote his article, the U.S. Supreme Court had already approved race-based preferences in undergraduate and law school admissions, provided that schools are sufficiently cagey in how they go about discriminating. However, Perez was pushing for a different, and potentially more expansive rationale for reverse discrimination than the one approved, to its disgrace, by the Supreme Court -- a rationale based not on diversifying the student body, but on servicing particular populations. In addition, as Roger Clegg notes, Perez was eager to "examine whether a similar case could be made in other professions."

[Mick]

US culture and history of public corps in US have combined to create a situation when naive share owners are ripped by CEOs.

For a background this is highly recommended:
Strong Managers, Weak Owners,
http://www.amazon.com/Strong-Managers-Weak-Owners-Mark/dp/0691026319

Mick

[grover norquist]

One thing you have to understand is that CEOs are not human beings. They come from a planet circling Alpha Centuri and are much smarter and wiser, as well as somewhat taller, than the humans here. Their intentions are benevolent and there is no reason not to give them lots of money and power.

Members of Boards of Directors, unfortunately, are often all too human, but they have proved their worth by giving lots of money to CEOs.

[Brutus]

If anyone is interested in learning how to identify a future CEO, check out top 5%ers at places like Texas and Harvard.

[rightsaidfred]

Do they "transfer wealth", or are they just overpaid for what they contribute?

[HS: It's the same difference. Value transference is my explanation for people being paid far more money than the value they create. They transfer the value created by other people to themselves.]

[Gamma Man]

"it’s likely that the traits needed to become a CEO aren’t what’s needed to be the best CEO"

Great insight! It's also my personal experience with CEO's. Most of the time they turn out to have been great salesmen or organizers in the past; did a great deal of ass-kissing to get where they are now; but are usually great failures as über-bosses.
Not unlike politicians, the skills they need to get an important appointment are totally different from the set of skills you need in office.

[Turambar]

"But wait, they are running the government! Michelle Obama was a director of TreeHouse Foods, a public company traded on the New York Stock Exchange. How happy we should all be to know that the country is in good hands, as long as Barack listens to his wife.

She was paid $51,200 a year for her services. How do I get a cushy job like that? "

Well if you have a Senate seat to sell then you get your wife appointed to a board which is what Blago attempted and Obama did.

I looked into this is a bit and I think Michelle got around $150K from Treehouse and when she resigned Treehouse never filled her board seat.

Just like the hospital which decided that it needed a "VP of Community Relations" at a huge boost in pay. However when Michelle left they never re-filled that position.

Meanwhile we are probably only a couple of years away from the current situation in England:
http://uk.reuters.com/article/topNews/idUKTRE54L1VG20090522
"The atmosphere in Westminster is unbearable," Conservative MP Dorries wrote on the blog (blog.dorries.org ). "People are constantly checking to see if others are OK. Everyone fears a suicide. If someone isn't seen, offices are called and checked."

[AG]

No wonder exams are more important in determining who will become physicians. Thanks God there is no election for physician job.

[James]

"The correct explanation for CEO pay is that it’s structural. The way corporations are set up, the guy who’s the CEO is able to transfer huge sums of money from other stakeholders to himself, regardless of whether he’s doing an especially good job as a CEO."

Well at least HS knows the truth, even if all those economists and shareholders are too stupid to see it!!

No but seriously...boards can tell who is a better candidate the same way this researcher did...by looking at their track record. Organizational skills, attention to detail and whatever else may predict better than people skills, but they don't predict better than PAST PERFORMANCE, which in the real world is what everyone uses to predict everything.

[Ric Locke]

All of which is why we need, badly, to dismantle the tax and regulatory measures that make it necessary to have gigantic organizations instead of multiple small to medium-sized ones. "Too big to fail" is already a failure.

Regards,
Ric