October 3, 2019

The Cult of the CEO

Joe Bennett wrote that he could have saved Fonterra half a billion dollars by doing nothing.

In the 1981 book by Peters and Waterman, ‘In Search of Excellence,’ they highlighted MBWA, Managing by Wandering Around. It was a recommendation for CEOs to remain in touch with the people who performed the daily tasks that ensured the business survived. It didn’t take long for someone to point out that one of the reasons why MBWA might work is that it stops a CEO demanding reports and information and interfering in the fundamentals of the business while sitting at his desk. No doubt, Joe Bennett would not have just done nothing but would have wandered around Fonterra chatting to dairy farmers and dairy workers and listening to them.

Rob Campbell, writing in Newsroom, argues against the current CEO remuneration structure and indicates that maybe the ratio between executive and worker pay has become too wide. He wrote: ‘The fault lies with directors. It’s something we all need to think about. Start with how we think about the job. Then how we think about the real attributes we need. And get off this escalator of rewards which are seldom really fit for purpose.’

In an entertaining presentation on TED, Dan Pink said: ‘There is a mismatch between what science knows and what business does.’ What does science know? Pink states ‘for 21st century tasks, that mechanistic, reward-and-punishment approach doesn’t work and often does harm.’ He sets out three building blocks for what does work. First remuneration needs to be adequate and fair, as he says, ‘money is off the table’. But then, what matters are: ‘Autonomy: the urge to direct our own lives.  Mastery: the desire to get better and better at something that matters. Purpose: the yearning to do what we do in the service of something larger than ourselves.’ These principle of remuneration should apply at almost all levels of the business, not just CEOs and the C-Suite.

Why do we still treat CEOs, as Campbell suggests, like a 19th century piece worker? The answer lies in the cult of the CEO.

Bennett continues: ‘For we live in the age of the cult of the CEO. All cults are the same, be they political, religious or commercial. They exalt an ordinary someone to the status of near-divinity. That ordinary someone becomes a demi-god, to be feared, revered, and in the case of the CEO absurdly overpaid.’

In addition to Pink’s book, directors should carefully read another study published earlier this year on Institutional Investor. Two professional investors, Dan Rasmussen & Haonan Li, published the results of their research using data from the Stanford Graduate School of Business. The title of their report ‘The MBA Myth and the Cult of the CEO’. They studied a range of questions – looking at the CEO’s education background, past performance, stock performance and tried to find correlations.

In particular, they wanted to determine whether Jensen’s philosophy (that CEO Compensation should be tied to stock performance) actually does provide better returns for investors.

They analysed a database of ~8,500 CEOs and their characteristics and mapped these to company stock performance. Their conclusions are revealing. In summary:

  • Company performance is not predicted by the CEO’s education background (so much for MBAs, even those from elite US Business Schools)
  • There is almost no persistence in CEO performance – so a track record at one company doesn’t guarantee success at a subsequent company. Past performance doesn’t predict future results.

These findings fly in the face of popular wisdom. Indeed, the media is filled with depictions of visionary CEOs who have a record of generating extraordinary returns while executive shelves and business school libraries are filled with books about highly successful CEOs.

I am sure readers will each have their own story of a CEO superman myth.

In the 1980s I had occasion to follow the progression of Alan Bond. Having almost been bankrupted in the 1970s, allowed more time by the ANZ to restructure his debt, he was advised (wisely) to seek a cash-generating business to service the debt which financed his property portfolio. He bought the Swan Brewery, at that time a virtual monopoly in Western Australia, which gave him the cash flow he needed and a substantial land bank, in the form of Swan pubs across the state. Buying, redeveloping, and selling at a profit was probably the one skill Alan Bond had. He financed the America’s Cup victory by Australia and the Bond myth started to snowball. Pursued by investment advisors, banks, and sundry others eager to offer him new deals, feted by the press, he started to believe his own PR and acquired company after company. But all at inflated prices.

I was at a beer convention in the USA shortly after he had purchased the Heileman Brewery for a vastly inflated price, some said three times what it might really have been worth. Asking many successful US beer wholesalers what they thought the reply was always the same. ‘Well, he’s a very wealthy man. He must know something we don’t.’ But, he didn’t. Within a few years Bond Corporation collapsed.

Dan Rasmussen & Haonan Li conclude their article by asking ‘How much longer will investors and boards be fooled by randomness and hollow credentialism?’

One answer might be: for as long as directors continue to look for a ‘superman CEO’ rather than a low profile yet competent leader. Such a leader should know how to bring together and lead a diverse team because no one person can be expected to have all the  diverse skills and competencies needed by a business to survive and prosper in today’s VUCA (Volatile, Uncertain, Complex, Ambuguous) world.

A second answer is: for as long as investors and boards choose not to keep up with science, nor do their reading, nor review current research, nor have the courage to apply their findings – the Cult of the CEO will continue.


  1. Tom Peters and Bob Waterman: ‘In Search of Excellence’ publisher Collins, 1982 (republished 2012)
  2. Michael Jensen and Kevin Murphy: ‘CEO Incentives: It’s Not How Much You Pay, But How’ published in the Harvard Business Review, May-June 1990
  3. Dan Pink – ‘Drive: The Surprising Truth About What Motivates Us’ publisher Riverhead Books, 2009
  4. Joe Bennett: ‘I could have saved Fonterra half a billion dollars’ published in The Dominion Post on March 28, 2018
  5. Dan Rasmussen & Haonan Li: ‘The MBA Myth and the Cult of the CEO’ publisher Institutional Investor, February 27, 2019
  6. Rob Campbell: ‘No CEOs were harmed in the writing of this column’ published on Newsroom NZ, September 9, 2019


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