Hacker News Reader

What most long-term investors would prefer is a cult of a 'process', rather than a cult of 'personality'.

A process' is a combination of know-how + culture + rules + compliance.

Every business goes through cycles (eg startup, growth, pivot, then repeat)

At every cycle, different personal qualities of a CEO would be more beneficial.

However, a property of a company with a cult of 'process', is that the process will organically select and retain a right CEO at a right cycle.

So two outcomes of the above position: a) recognizing a company with a good process, is a very important and powerful skill to have (likely Warren Buffet has it).

b) averaging CEO performance without recognizing what cycle the company is at, compared to CEOs skills, is not by itself a measure of CEO performance. It is more of a proxy measure to whether the company has a sustainable and investment-ready process or not.

--

By the way, with regards to > This is why it's not such a big deal for most people that Ronaldo or Messi get paid a lot more than their teammates, and the rest of society.

I would challenge that, and say that it is quite abnormal, historically, for entertainers to get paid this much.

The development of multiplicative technologies (radio, TV, internet), and lack of wars between the 'super-nations' -- is really what made entertainers into exceptionally wealthy profession.

So, yes it reasonable to assume better performing sportman will get paid more than their team mates. But it is not reasonable that they get paid this much... that bothers me.

Athletes and entertainers being paid insane amounts isn’t as new as you might think, although fashions do wax and wane.

https://en.m.wikipedia.org/wiki/Gaius_Appuleius_Diocles

Gaius Appuleius Diocles was born in approximately 104 A.D in Lamecum... Diocles is believed to have started racing at the age of 18 in Ilerda... Records show that he won 1,462 out of the 4,257 four-horse races he competed in and was placed in an additional 1,438 races (mostly finishing in second place). The ‘champion of charioteers’ is one of the best-documented ancient athletes, most likely because he was such a star at the famous Roman Circus Maximus. [1] Being the best in the field also seems to have allowed Diocles to perfect his showmanship. Many of his victories took the form of a ‘come from behind’ crossing of the finish line at the last possible moment. The crowds loved it. Any race with Diocles quickly became the ‘featured event’ of the day. This naturally helped Diocles make even more money. His winnings reportedly totaled 35,863,120 sesterces, equivalent to 358,631.20 gold aureus or 2,600 kg of gold, allegedly, over $15 billion in today’s dollars, an amount which could provide a year's supply of grain to the entire city of Rome, or pay the Roman army at its height for a fifth of a year. Classics professor Peter Struck describes him as "the best paid athlete of all time".

Records show that he won 1,462 out of the 4,257 four-horse races he competed in and was placed in an additional 1,438 races (mostly finishing in second place).

>Many of his victories took the form of a ‘come from behind’ crossing of the finish line at the last possible moment. The crowds loved it.

What a wonderful story. The fact that he frequently finished in second place makes me think he was often trying to pull off a come from behind victory without quite managing it.

I can see how being instrumental in creating an exciting and tight race might be more lucrative than merely winning all the time. At least when the main source of revenue is spectators rather than sponsorship.

I'm not sure that a cult of process would be desirable - even putting aside irrationality of investors in the first place (and there is plenty in that field both mostly with short-term but also with long-term).

Process dominated companies often have issues with failing to adapt to a changing world as the reasons behind the process no longer exist and yet they stick with it anyway only to wind up out-competed and irrelevant.

On another note CEOs are generally overcompensated - especially if they wind up getting paid well even if they run things into the ground but I'm not sure process is a good antidote - I suspect the true issue is the lack of good feedback mechanisms/incentives given how many times companies have engaged in utterly stupid moves to try to inflate stock prices or earnings temporarily.

Meanwhile higher paid entertainers actually makes sense and are rational - they actually need to command the value fundamentally to be able to sustainably receive that much pay and paying them a 'reasonable' wage that massively undervalues them gives a strong incentive to jump ship when the enterprise depends upon them. It may not speak well to people's priorities given more important jobs that are paid far less but that is the economic reality.

Thx for the note.

So, I tend to separate a 'process' from a 'ritual'.

Most organizations would have 'rituals', but not processes in the context I noted above.

A 'ritual', is a process without clear goals, and without compliance and compensatory controls.

So, when a company has a pow-wow annual product strategy meeting, driven by a new CEO... or a technology group holds bi-monthly Architecture board meeting, or a data governance meeting -- those are mostly rituals. Not processes.

Rituals, masked as 'processes' are bad, of course.

They take oxygen out of the cult-of-the-process and move it back, again, to the cult-of-personality.

Which, then creates very similar 'profile' to the one of an organization that depends on a 'hero/mover and shaker/brilliant CEO'.

I do challenge myself at times, to compare how my disdain for the culture-of-personality would work at a war time..

Do general win wars, or do the troops?

I am going to say, at I need to learn quite a bit of more historical facts before, I can approach that subject.

Which is also why, I believe, solid bias-free education in history is almost essential for the work in management consulting, large organization transformations, and even creative consumer-oriented product design.

--

WRT my point on entertainers.

Their talents today, are not fundamentally different than the same talents that were appreciated 3000 years ago. Because these are bound to physical human abilities (and I include comedian/actors there as well).

This is in stark contrast to the professions that leverage scientific knowledge to achieve their expected outcomes (eg engineers, medical doctors, etc).

There is no net-positive-to-society economic model, where we can justify an actor making more than 1000 science teachers or a 1000 soldiers.

As I noted above, I think the entertainers benefited greatly from technologies, that allowed them to multiply and extend their performances in space and time.

For non-sportsman entertainers , additionally the copyright system , put them on the same footing as engineers leveraging the patent system (both systems are now heavily abused to install mafia-like control over engineering or entertainment content).

Lack of wars among the super-nations, and using entertainers as vehicles for political agenda, also gave them additional compensation leverage. Last 50 years, in western societies, have been exceptional for those professions.

And I find their current compensations whether it is Messi or Bill Maher, or Tom Cruise -- just repulsive (and even more so, than of mediocre or even talented CEOs).

> So, yes it reasonable to assume better performing sportman will get paid more than their team mates. But it is not reasonable that they get paid this much... that bothers me.

Would you prefer that the money just went to the owners, instead of the players on the field?

I think his view comes from a 'comparables' mindset. If you are to compare everyone else in the economy to entertainers, should they be receiving the multiples that they get? It makes other questions pop-up, for example.

If all the entertainer has to do is to practice and show up for the event, should he be making all of that or should a larger portion be distributed to all the other key variables that make him the center of attention?

> I would challenge that, and say that it is quite abnormal, historically, for entertainers to get paid this much.

Take a look at the salaries (certain) movie stars made in the 1930s

We don't need Presidents and Popes either.

The world is a much more complicated place today, than during the time of kings, and the accumulating data is going to keep revealing the complexity is too much for one man or woman to be responsible for it all.

But when a Deepwater Horizon type event happens and the whole herd starts baying for blood, are we sophisticated enough to say hey look at the data whats the point of lynching one person?

Of late the US seems to have attained that level of maturity, given how they have dealt up with Wall St after 2008, or the Pentagon for the 20 year war or dear Mark Zuckerberg. So maybe it's time.

I don't see older firms changing but newer firms might turn less hierarchical.

:Of late the US seems to have attained that level of maturity, given how they have dealt up with Wall St after 2008, or the Pentagon for the 20 year war or dear Mark Zuckerberg. So maybe it's time."

I don't think 2008 was a sign of maturity when the people who caused and benefitted from the meltdown got bailed out and could keep their money. Maturity would have been that the people who ran the banks before the crash would have lost all their money since it turned out that their contribution was overall negative. We have reached a point where the people who make the most money can hide behind big faceless corporations. They reap most of the profits while the losses go to the rest.

It's an interesting thought. Object oriented responsibility is as archiac as object oriented data analysis because since the rise of ML we know that the larger objects were just mental models for human decision making. However they erred by covering through averaging of more granular inputs that had conflicting information. I.e. if I'm a CEO and 3 of my VPs are good but one is terrible is it my fault that only one has become a risk. Under current object oriented thinking, yes but with granular analysis no it's the VPs fault.

Neither the President nor the Pope have a considerable amount of power.

The office of the pres. was specifically designed to 'not be a king' and he's highly constrained by the other wings of government. The US was supposed to mostly about the states.

The Catholic Church generally gives a very wide berth as to the operational artifacts of Parishes. He's also to some extent a figurehead.

CEO means such different things at different scale, at different organizations, it's really hard to compare.

I suggest the issues may have a lot to do with short-term vs. long-term incentives.

Also - 'average' pay isn't so helpful when there are a few with massive, massive pay packages that skew all of the data.

> Neither the President nor the Pope have a considerable amount of power.

Depends on which president you're talking about. The presidents of France and the US have a lot of power, the president of Germany has practically none. Monarchs in modern democracies often have less power than the German president.

And while presidents are highly constrained by other branches of the government, many pre-democracy kings didn't have any sort of absolute power either. Ultimately of course, any ruler can only rule with the consent of the people he rules; the real difference is to what extent those limitations are formalised in a law, like the US Constitution or the Magna Carta, and how far those limitations go.

In many companies, both the real source of a CEO's power and the real restrictions on his power come from outside the company, not from other employees of that company. The outside law supports the CEO's right to dictate how the company will be run, but also limits how much he can oppress or exploit his workers.

To play devil's advocate: The primary function of a manager is to say "No". As one goes higher and higher up the hierarchy, one has to say "No" to pushier and pushier subordinates, and the cost of every misplaced "Yes" is higher and higher. While leaders just under the CEO may understand the firm situation just fine, they may also be unable to say "No" to enough bad ideas for a myriad reasons, including lack of political clout with other leaders, with investors or with peer CEOs.

> The primary function of a manager is to say "No".

I'm a manager, and I can't really see this being the key job description.

But if it was, why would that have gotten harder in the last few decades?

Lots of people come to my team asking for work on X. If I said yes to everything my team would collapse from being spread too thinly. Being able to say that X is lower priority than what I am currently working on and leave the door open for re-evaluating priorities if needed is a key part of my job.

My team also frequently comes to me with ideas for interesting work that also isn't contributing to our vision. If we just did everything that came to mind we'd also fall apart.

My experience after 35 years is nothing scares me more than when a team of out of control developers are adding more and more features to the spec. Most baffling is it's obvious they think they are accomplishing something and you're a meanie for trying to rein them in. It always ends the same way. A lot of things can go wrong in a project. But that's that one 100% guaranteed to sink it.

On the flip side, a team of developers who aren't even interested in adding anything of their own volition is also a bad sign.

There has to be a balance.

Can’t say no to everything, or soon you won’t have anything to say no to any more.

You can't say "no" to everything, otherwise you'd be taking security's job.

In a good profession relationship 95% of the time proposals/issues are discussed until some agreement is reached or a decision to punt is made. The basis of that is a mature understanding that resources are limited.

Agreed. Being a decision maker means saying "yes" and "no", with the awareness that saying "yes" to some things, means saying "no" to others.

In my experience, those who say "the primacy function of manager is to say no" have either failed at management, or are working in organizations so conservative that they are immobile.

I think it varies with the group being managed. I've managed groups where many other groups hoped to benefit from our time, resources, and work products. In such groups a manager really does need to say "no" dozens of times for every "yes".

I think the primary function of a manager is to close the loop. Taking information from in and outside the group and turning that into a set of clear manageable requirements.

The job description is prioritization which is essentially saying "yes" or "no" to certain tasks. Especially in tech companies, the front line reports can always find something to do. Software developers want to automate everything or build cool things or use the latest tech. Managers are there to guide that, and that means saying "focus on A, B and C" because there's a gigantic list of tasks but saying no to 99% of that list makes the company perform better.

Next study "is ability to say no significantly different between COOs/CFOs and CEOs?"

My money is on no.

Saying “no” is easy. But it’s hard to say “yes” if it involves some risk.

See the movie industry

That's...a very apt example.

That is not primary function of manager. Misplaced no can be as disastrous as misplaced yes. Or just as irrelevant.

Also, the higher you go the more vague those people get, frequently saying neither nor yes.

Not to say “no” but to understand the company’s direction and only say “yes” to things that align. Important in this mix is communicating direction to the team and explaining the yes & no decisions.

The disastrous pivot that the Provident Financial did in the UK is one example.

Well, poor outcomes can certainly be attributed to poor direction from a CEO. Many of us have experienced that. My example is a new ceo who came in making a lot of noise about cleaning house and righting the ship. His intention was the sales org, but effectively scared off the best developers. He did also gut the sales org, and sales never recovered.

So objectively it’s not out of the question the reverse could be true, that a ceo could influence a positive outcome, maybe just harder to measure?

But this doesn't test what another CEO would have done in the same situation.

All we can do is make a guess about how the average CEO would have performed. There's no way to really test it.

"Why should there be a many-multiples reward for being slightly up the senior management ladder at each step?"

Really suggests some sort of a ponzi scheme...

> What it does seem to be is a kind of stamp of ambition. People who go to business schools are keen to work hard to reach the top of the business world.

Same as most degree credentialism. People don't hire Harvard graduates because of all the valuable stuff they learned at Harvard, they hire them because they were smart and driven enough to get in to Harvard.

Or they hire them because they went to Harvard as well.

> I don't think anyone is surprised that it doesn't help at all.

I know you're purposely being sensationalist, but there is pretty incredible value in the networking by doing an MBA...which IMHO is actually what makes good CEOs - having strong networks of people around you.

Right, clearly this makes strongly networked CEO, but not a "good" CEO in terms of subsequent period share returns, as the research demonstrates.

The CEO's decisions matter. For the most obvious example, see Apple. A series of CEOs drove Apple to near bankruptcy, then Jobs became CEO. With the same employees, plant, equipment, culture, etc., he turned it into the largest company in the world.

He did something similar to Pixar.

Microsoft is another example. Same company, same staff, same products, 3 CEOs, stark difference in results.

Your examples show that CEOs "can" matter, but not that they "do" matter.

I think anyone would agree that there are plenty of CEOs who happened to get their jobs just as pipelines come through, the economy rebalances in their favor, long-term HRD plans come to fruition etc. but they get all the credit anyway

The man in charge always gets the credit.

I have some AMZN stock. I wouldn't trade Bezos for someone cheaper. Would you?

To my knowledge Bezos gets paid only 80 grand a year - so no.

That's salary, not compensation.

It’s pretty much both.

https://www.marketwatch.com/story/the-typical-amazon-worker-...

Companies this year are reporting their CEO pay in relation to the compensation of a median worker for the first time as a result of a 2015 rule mandated by the Dodd-Frank act. Amazon Chief Executive Jeff Bezos recorded total compensation of $1,681,840 in 2017, almost all of which is money paid for personal security — Bezos drew a salary of $81,840 and received no additional stock. Bezos’s compensation is 59 times the median Amazon worker’s.

He doesn’t need to draw a fat salary or get more stock, he already owns more than $110,000,000,000 in stock.

Bezos is a hardcore megabrain who lives in the future

I think he is atypical, and so not a good representative example

Apple was eaten from the inside by Next, it's definitely not Jobs alone, it's Next using Apple capital and brand.

Jobs created Next, too.

> This is why it's not such a big deal for most people that Ronaldo or Messi get paid a lot more than their teammates, and the rest of society.

This is not why, and has nothing to do with it. Players get huge wages, because they are the best on their teams, and the sports generate a lot of money. If it wasn't going to the players, it would go to the owners.