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The Small-Cap CEO

I admire those CEOs who successfully manage large corporations. It is a difficult task, one only a few executives pull …

I admire those CEOs who successfully manage large corporations. It is a difficult task, one only a few executives pull off with concomitant accolades from their shareholders, employees, suppliers, customers, and the press. Those who do are the subjects of books, are invited to lecture at prestigious business schools, and are enshrined on magazine covers. It is a heady experience.

In many ways, however, I am even more impressed with CEOs who successfully manage the hundreds of thriving, small-capitalization corporations that constitute the heart and soul of our American enterprise system. Their names are not household monikers, and they rarely receive awards or homage outside their own communities-and sometimes not even there. But their financial and personal rewards may be as great or greater than those of their Fortune 100 counterparts.

The typical CEO of a huge company may earn an annual salary and bonus of $1 million to $5 million for five to 10 years. If the timing is right and the stock options generous, he or she should generate $5 million to $10 million in capital gains during that time. Things vary, but a big-time CEO should be able to retire with a nest egg of $10 million to $20 million and a comfortable pension. Some CEOs, such as Michael Eisner of Disney and Robert Goizueta of Coca-Cola, do several times as well.

On the other hand, the country is dotted with wealthy-or soon-to-be-wealthy-small-cap CEOs who can match and exceed these monetary successes. Some are entrepreneurs; some came in through leveraged buyouts or spin-offs; some were recruited from large companies; and some, of course, inherited their company positions.

All made a fetish of building value into the business. They discovered and exploited niches. They developed competitive marketing, operating, and financial techniques. They found and trained the managers who could get the jobs done. 

They overcame obstacles and pitfalls. When the right time came, as it did for many of them, they went public or sold their companies or retired with their stock. Many fared as well as or better than their large-company counterparts.

The stress of being a small-cap CEO can be-but is not always-less than that of a multiproduct, multidivision, multinational CEO. Small-cap executives invariably are hands-on managers who personally deal with crises and make the big decisions. They rarely have the trappings of experienced staffers, consultants, and service agencies on call. One significant mistake can sink the whole ship; whereas, in a large company, one big mistake may sink one of a dozen ships. That risk is always present for a small-cap CEO.

Does it take different kinds of people to succeed in these two circumstances? I believe so, but there are so many exceptions that it is not a rule. Good CEOs learn from experiences; they learn how to lead wherever they are. Many observers contend that a good executive can move from a large company and learn how to be CEO of a small one, but cannot go in the opposite direction. (This theory is being tested in real life as Raymond Gilmartin moves up from Becton Dickinson to Merck and as Harry Stonecipher goes from Sundstrand to McDonnell Douglas. I continue to watch those situations with interest.)

When my students at Columbia Business School tell me they would like to manage a small-cap company, I urge them to first work for a leader in the industry they wish to enter. I tell them to stay there until they have learned a trade and are recognized as an up-and-coming manager. At that point, I tell them, “If you are lucky and good, you will be approached to move to a senior management position within a smaller company. Weigh your options and decide whether to go or stay; it probably will not be the only chance you get. If you do go to that small company, see your way clear to becoming an important cog in the scheme of things to come and sharing in the values to be created.

“You won’t hear the roar of the crowd and the G-2 engines, and you probably will not be selected Chief Executive of the Year. But if you choose wisely, and if you work smart and hard, you can have a wonderful and rewarding career as a small-cap CEO. “

Formerly the CEO of F&M. Schaefer (19721977), Robert W Lear is chairman of CE’s advisory board. He also teaches at Columbia Business School, where he is an executive-in-residence. He is an independent general partner of Equitable Capital Partners and holds directorships with Cambrex Corporation Inc.; Scudder Institutional Funds; Korea Fund; and Welsh, Carson, Anderson, Stowe Venture Capital Co.

About robert w. lear