How Bad Boards Kill Companies: HP
mondaynote.com
mondaynote.com
Nearly every major company's board is full of people who have more-than-full-time day jobs, plus sit on 3-5 other boards. There is really no way they can do a proper job in that situation; in practice, they devote one day a month to doing the bare minimum to fulfill the responsibilities of each board position they hold, if that.
For example, after a story about Cisco acting badly (http://news.ycombinator.com/item?id=2789540), I was motivated to look at who was on Cisco's board who might exercise some oversight. What I found didn't seem likely to be a group of people spending much time on the matter. One of the board members is the President of Stanford University, which I assume is a pretty busy job to begin with. Another is the now-former CEO of Yahoo mentioned in this piece. One more is the CEO of Mercer, the world's largest H.R. consulting firm. How much time do you think these people each take out of their day jobs to really understand how Cisco operates? I would wager very close to zero.
So this seems (to me) much more of a structural problem with how large companies are run, than an HP-specific problem. They may have gotten particularly unlucky roll of the dice, but this style of corporate governance isn't set up to favor good outcomes.
Answer: They are all on each other's boards, so when it comes time for their own compensation review, they trust that the other board members will remember their generosity.
How many people in the world can run an organization of that size and scope? Not many at all. And surprise, surprise: those people are in high demand. Very high demand. Do you seriously believe that a guy getting paid $50 million a year at a Fortune 500 company had no other offers or alternatives, and so the board could have hired him at $5m instead? Right or wrong, they offered $50m because they thought that this individual could move the needle enough to make it worth it. Which is probably true, by the way: a 1% increase in HP's revenue is enough to cover the CEO's jumbo salary 20 times over.
Considering the public good, big companies lead to monopolies (bad for consumers and innovation), "too big to fail" bailouts (bad for taxpayers and employees), and backroom political lobbying (bad for democracy). Perhaps antitrust laws could be proactive instead reactive, prescribing limits on company sizes for some metric(s).
The reason the salary increase has been concentrated on the top and nearly ignoring everyone else is exactly what the parent said: these people are on each other's boards.
I wonder more recently if we should force more re-distribution, through tax or otherwise. Not because I am hippy (or not going to be a squillionaire myself), but because I doubt the capacity of the top CEO to allocate his capital wisely.
> How many people in the world can run an organization of
that size and scope? Not many at all.
Personally, I think a great many people have the skills & abilities needed to run these companies, but that is not what headhunting committees look for/what is actually being valued. They are looking instead for choices that are defensible, i.e., no one ever got sued for breach of fiduciary duty by appointing the Harvard MBA who ran three other multinationals -- even if they ran them all into the ground.
(to clarify: i think that you're actually claiming that few people can run these behemoth companies successfully. I think that success is actually very difficult to measure: e.g., establishing what would've happened if you appointed an 'average CEO', vs. appointing someone from 'the factory line' who knows the product, vs. appointing a bum on the street. What trends were already in place for/against the company, etc., what cultural inertia did they inherit, etc. )
Considering the pay for BoD members: They should be fired by the shareholders and replaced.
They move through, cut cost by laying of people. That leads to great profit increases for a quarter or two, after which the lack of qualified employees shows its toll.
By the time that problems become apparent the CEO collected a huge bonus and moved on, leaving the mess for somebody else to cleanup.
I'm not sure locusts is correct, but mercenaries definitely is: in this day and age, short-tenure CEOs are brought in specifically to raise stock prices over the short term (or in rarer situations, to take the knocks coming with a change of direction leading to short-term raises of stock prices with the next mercenary), regardless of the long-term outlook of the company.
Their outlook is generally under 24 months, and their job is to do everything they can to artificially inflate stock price in that time-span. This leads to scorched eath strategies instead of long-term planning and sustainability, since they won't be there when trouble hits the door. It's basically the tragedy of the commons all over again.
And some profoundly stupid ones, like Skype. I think Ebay ended up turning a profit on Skype in the end (under John Donahoe, the current CEO), but that doesn't mean that it ever made any sense.
She also fostered a culture where people on the "business side" (mostly Harvard MBAs, like her) would sit in one building while software engineers would toil away in another building. The idea was to maximize worker flexibility and prevent businesspeople from getting too attached to engineering resources, but in practice it really felt more like you were outsourcing projects to teams located 300 yards away.
That could be a blessing in disguise
Now usually there's a nice co-existence between the board and it's top execs since both depend on each other.
In HP's case the board IS trying to run the company. And worse, it's not supporting it's chosen CEO. Big mistake.
There's a lot of value in HP. Which is why after all the stupid shit the board has done the company is still alive.
We'll see if Whitman can cut through the board and get it all right. She has to pretty much force out those board members who aren't behind her. Not easy to do in any envionment.
well, she managed to force out the previous, just recently hired, CEO. Seems like she has already excelled at the politics of this board.
I hate to bring politics into this, but regardless of whatever side you're on Congress and the president seem to be doing the same thing. Although they're supposed to watch each other. They forgotten that they're on the same side. It should be working together to get things done. Internal fighting and derision can kill governments, as well as companies.