754
n
Gods and villains
inuence of a Napoleon on the course of those events is purely supercial
and imaginary.”
I think we also overdo it a bit when we bestow our complete and
unreserved adoration on the CEOs of successful corporations. But
similarly, perhaps we also tend to overdo it a bit when we vilify
the CEOs of companies that have failed?
Perhaps one extreme (and sad) example of the latter is Warren
Anderson, the former CEO of Union Carbide, who was in charge
of this behemoth of a company on December 3rd 1984, when
one of its plants, in Bhopal in India, caused what is perhaps the
most dreadful industrial accident in the history of mankind. A
leak of poisonous gas killed thousands of people on the dreadful
day itself, while tens of thousands of people perished in its
aftermath.
The people from Bhopal viewed – and still view – Warren
Anderson as the prime instigator of the evil that befell them. They
still paint “Hang Anderson” on the city’s walls and burn puppets
in his imagery. Was Warren Anderson responsible? I am sure he
was; he played his part being in charge of the company that
owned 51 percent of the factory.
The personal anger of the people
of Bhopal is understandable, just
as the adoration of Jack Welch
et al. seems to satisfy some deep
human inclination to create gods.
But, in reality, both the success
and the downfall of our organiza-
tions are, as Tolstoy put it, the result of “the combined volition
of all who participate in those events”. When we glorify the
individual we might be exaggerating; when we vilify the fallen
we might be overdoing it too.
Celebrity CEOs and the burden of expectations
One great scientic study on celebrity CEOs examined the conse-
quences of receiving awards. It focused on the former business
‘‘
When we glorify the
individual we might be
exaggerating; when we
vilify the fallen we might be
overdoing it too.
’’
Business Exposed76
magazine Financial World, which had an annual and widely
publicized contest called CEO of the Year. Based on a survey of a
large number of analysts and CEOs, they awarded medals to the
top executives of a number of large American rms. A couple
of thousand CEOs were eligible; they gave out a few hundred
bronze medals, about a dozen silver medals, and one gold medal
to the true God of Business. The medals were awarded during a
lush and golf-anecdote-friendly dinner in New York City. The
magazine has long gone bust (although, reportedly, throwing
lush dinners till the bitter end) but its awards continue to echo
a telling tale.
A few years ago, together with some colleagues, Professor James
Wade from Georgetown University examined what happened to
these award-winning CEOs and their companies following the
receipt of the prestigious prize. They rst analyzed whether the
companies of the award-winners actually did any better than
the awardless schmucks, and the answer was “nope”. Professor
Wade and his colleagues put it a bit more carefully, saying that
“star CEOs have neither a positive nor a negative effect on the
operating results of rms” but, of course, this basically means:
nope.
They then analyzed whether the star CEOs made more money
(for themselves) than the hapless schmucks, in the form of the
size of compensation package they were given by their boards
subsequent to being awarded the medal. And the answer was
a profound “yes” – that is, with one caveat. Winning a medal
increased a CEO’s pay by about 10 percent but if the company
displayed bad performance (as bad as a negative return on equity),
the lauded CEO would actually make less money than his medal-
craving counterparts. Apparently boards are suckers for stardom,
in terms of compensating their prized CEOs, but when these
captains severely underdeliver they will also punish them for it.
Yet, for CEO remuneration this negative effect was relatively
weak; after all, there are not many companies around with
negative ROE. The stock market, as usual, was more ruthless.
Jim and his colleagues also examined how the stock market
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