With the launch of the eponymous Apple II, the fortunes of the Cupertino-based company, which had incorporated earlier that year, began to take off. And in the middle of 1977, Chief Executive magazine was launched as a quarterly, with President Jimmy Carter on the cover.
At its inception, the publication’s founder-owner, John Deuss, a Dutch oil trader and entrepreneur, had grandiose dreams of creating a vehicle where leaders in business, government, religion, education and society would advance their thinking on an equal footing. The archbishop of Canterbury graced the cover of issue two, and in later years Saudi Arabia’s oil minister and the sultan of Oman were featured. But before long, the magazine directed its editorial efforts to becoming a voice for chief executives in business, principally international business.
Henry Ford II, chairman of Ford Motor Company, and David Rockefeller, chairman of Chase, held forth in its pages on the importance of international trade and the perils of regulation.
In one early issue, U.S. Treasury Secretary Michael Blumenthal, IMF executive director Jahangir Amuzegar, Bank for International Settlements’ Jelle Zijstra, Nestle Director General Eric Gabus, Swiss National Bank President Fritz Leutwiler, Salomon Brothers’ Henry Kaufman and MIT economist Charles Kindleberger joined other notables to be interviewed on whether the world needed a new monetary system (most said no).
THE GENEEN APPROACH TO LEADERSHIP
With a firm focus on leaders and leadership, the magazine chronicled the activities of bellwether CEOs and witnessed how the arc of leadership thinking changed. One key indicator: the retirement in 1977 of a CEO legend: Harold Geneen. Today’s readers can be forgiven for thinking of Geneen, if they think of him at all, as a figure as obscure as Alcibiades during the Peloponnesian Wars. He was not the only major figure of the day.
There was Citibank’s Walter Wriston, DuPont’s Irving Shapiro and Reginald Jones of GE. But not since Alfred Sloan ran GM in the 1940s and 1950s had a business leader captured the imagination of other CEOs, with many of them modeling their own management style after his. A former accountant, Geneen ran ITT from 1959 to 1977 with an iron hand. He turned minor acquisitions of the 1950s into major growth during the 1960s.
Under Geneen, ITT bought more than 300 companies in the 1960s, including some hostile takeovers, giving impetus to the trend that dominated business 10 years later. (Many takeover activists, such as the Bass brothers and Carl Icahn, would later use Geneen as their model—or excuse—for their appetites. In a 1986 CEO roundtable, Icahn admitted as much.)
The deals included well-known businesses like the Sheraton Hotel chain, Wonder Bread maker Continental Baking, Rayonier and Avis Rent-a-Car, as well as many smaller operations. ITT became the archetypal conglomerate, a form of business that lost its appeal decades later. For him, the numbers meant everything; the actual product that was produced seemed incidental. More than 100 managers were required to furnish him with weekly reports and more detailed filings every month. A month before he retired, 146 reports totaling 2,537 pages poured into his office. He read them all.
THE WELCH MYSTIQUE
By the 1980s, the age of the imperial CEO was coming to a close, as was Wall Street’s fascination with conglomerates. Tech startups such as HP, Microsoft, Intel, Cisco and Apple were making their mark on the wider world of business—although entrepreneurs such as Apple Computer founders Steve Jobs and Steve Wozniak were still not yet seen as being experienced enough to be models for business leaders outside of the hi-tech world.
By 1981, when Jack Welch became GE’s youngest chairman and CEO, succeeding Reginald H. Jones, the world of management leadership was about to change. Within a year, Welch had dismantled much of the earlier management through aggressive simplification and consolidation. Under Welch’s leadership, GE increased market value from $12 billion in 1981 to $280 billion, making 600 acquisitions while shifting into emerging markets.
In contrast to leaders like Geneen, Welch pioneered a policy of informality at the workplace, allowing all employees to have a small business experience at a large corporation. Welch worked to eradicate perceived inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He closed factories, reduced payrolls and cut lackluster units.
In their CEO bible of the time, In Search of Excellence, Tom Peters and Robert Waterman found common themes that they argued were responsible for the success of successful companies. Although Welch was not a subject of the book, he soon became identified with a number of the authors’ precepts, namely, a bias for action, getting close to the customer, autonomy and entrepreneurship, productivity through people and sticking to one’s knitting—staying with the business that you know.
Welch made unexpected visits to GE’s plants and offices and popularized so-called “rank-and-yank” policies, soon to be used by other corporations. Each year, Welch would fire the bottom 10 percent of his managers, regardless of absolute performance. He earned a reputation for brutal candor. He rewarded those in the top 20 percent with bonuses and stock options. He also broadened the stock options program at GE, extending availability from top executives to nearly one-third of all employees. Welch’s leadership style would dominate business thinking even after he stepped down in 2001.
There was hardly a bylined article by other CEOs that appeared in Chief Executive and elsewhere that did not extol his ideas and methods. Even business school academics were under his spell. Some might argue that there was a cult. For example, Welch adopted Motorola’s Six Sigma quality program in late 1995. Motorola had been using it for years under Paul Galvin, but it was Welch who got the glory. In 1993, he was named (by acclamation) Chief Executive of the Year by Chief Executive. By 1999, he was named “Manager of the Century” by Fortune magazine.
COURAGE RISES TO THE FORE
Since Welch, there has been no single CEO who has dominated the leadership landscape. The shift in thinking among CEOs was exemplified by the criteria used by the Chief Executive of the Year selection committee. When Welch served on the committee after he won the award, he insisted that vision should be among the most important criteria considered. And for many years, this view prevailed. Leaders such as Herb Kelleher, Andy Grove and John Chambers were extoled in no small measure because of the vision they possessed for their companies.
By the middle of the 2000s, however, the judges began emphasizing a quality that was present in committee discussions, but not expressly included among the criteria: courage. After the go-go days of the 1990s, CEOs were facing headwinds from global competition and pushback from government and society. Leaders such as Enron’s Jeff Skilling and Tyco’s Dennis Kozlowski were also giving CEOs a bad reputation.
CEOs were facing more risks, and business itself came under heavier scrutiny, particularly after the Great Recession in 2009. CEOs with courage, it was argued, were needed more than ever. In addition, the courage to do what’s best for the company along with the humility that comes with realizing that the CEO doesn’t have all the answers was emphasized by Jim Collins’ seminal 2001 work, Good to Great. Collins also stressed getting the right people on the bus, often trying them out in different positions, before driving strategy.
No doubt, Collins gave a framework for an emerging imperative, emphasizing the importance of employee engagement. The rise of the servant-leader was underway. Target’s Bill Ulrich, Xerox’s Ann Mulcahy, Yum Brands’ David Novak and AT&T’s Randall Stephenson, among others, were singled out for the award in part for their attention to the people and processes they fostered.
THINKING DIFFERENTLY ABOUT SHAREHOLDERS
The rise of employee engagement and the CEO’s attention to talent management also saw a parallel rise in questioning what had been an unquestioned tenet for decades: the primacy of shareholder value. Every CEO since the 1970s repeated the platitude that his company was being run to maximize returns for shareholders. But as Cornell law professor Lynn Stout points out, corporate law poses no enforceable legal duty to maximize profits or share prices for investors.
In her book The Myth of Shareholder Value, she argues that corporations have longer-term interests such as providing rising wages, product innovation and customer satisfaction. Reflecting how a growing number of executives have changed their thinking, Stout says that the primacy of shareholder value thinking endangers not only investors, but the rest of us as well, leading managers to focus myopically on short-term earnings; discouraging investment and innovation; harming employees, customers and communities; and causing companies to indulge in non-value adding behaviors such as moving plants and jobs around the world.
“It is widely believed that the corporation exists to maximize profits,” says Ralph Gomory, former senior vice president of IBM and now research professor at NYU. “This is not only wrong, but destructive.”
Dean Krehmeyer, an executive director of the Business Roundtable, says, “The myopic focus on short-term results not only undermines longer-term value, but is legally inconsistent with leading governance principles.”
A number of CEOs, such as Whole Foods’ John Mackey, the co-author of Conscious Capitalism, have been asserting that CEOs need to climb out of the self-created hole they have dug for themselves. And this doesn’t even touch the question of who the shareholders actually are.
Short-termers have taken over the stock market. In the 1950s, the average holding period for an equity traded on the New York Stock Exchange was about seven years. Now it’s six months. Similar trends can be seen in other markets around the world.
In a more recent development, high-frequency traders whose holding periods can sometimes be measured in milliseconds now account for as much as 70 percent of daily volume on the NYSE. Can such a “shareholder” seriously have the interests of the company whose shares he is holding in mind?”
What is particularly galling,” wrote Charles Wohlstetter, chairman and co-founder of Contel, an integrated telecommunications company as early as the March 1990 issue of Chief Executive, “is the write-off of individual investors by the technocrats and institutional traders who dominate trading today.”
Prior to the 1970s, managers and directors viewed themselves not as shareholders’ servants, but as trustees for great institutions that should serve not only shareholders, but other corporate stakeholders as well, including customers, creditors, employees and the community. Equity investors were treated as an important corporate constituency, but not the only constituency that mattered. Nor was share price assumed to be the best proxy for corporate performance. Activist investors will continue to push for their narrower interpretation of value. The times will require a senior CEO statesman to boldly advance what appears to be a new way of thinking about value creation and the appropriate role of the corporation.
GLOBALIZATION AND TECHNOLOGY CHANGE THE DYNAMIC
Forty years ago, we saw how most CEOs were autocrats. They micromanaged to make sure everyone was doing what they were supposed to be doing. Since then, two powerful forces have greatly altered this: globalization of markets and technology.
For example, 20 years ago, a company such as Sealed Air, a packaging company at the lower end of the Fortune 500, was typical of most U.S. firms. No more than 35 percent of its sales derived from markets outside the U.S. Today, that figure represents almost two-thirds of its total.
In the 1980s, nearly every manufacturer complained about Japan Inc. and how it was eviscerating American manufacturing. Today, no one talks about Japan Inc. And even today’s discussions about trade relations with China have been tempered by how globalization and technology have changed the dynamic.
Both forces have greatly increased the complexity and the speed of change rendering autocrats as worse than useless; they can be ruinous. What is required to create a great product or service is well beyond one leader. The world is moving so fast now, and technology is changing every industry.
Not surprisingly, the role of the CEO has changed along with it. Consider how the nature of technology changed from the perspective of the CEO. Forty years ago, information technology counted things. Later it was able to carry out instructions to operate things. As such, it was treated as a “black box.” CEOs didn’t need to understand how it worked so long as they could control those who did. What followed was a long simmering dispute between CEOs, CIOs and others. Was IT truly serving the strategic business goals of the company? As IT spending soared, this became a non-trivial concern.
Throughout the 1990s, and into the early 2000s, this problem vexed many leaders. In more recent years, the nature of technology has changed the landscape for CEOs once again. Raw computing power has been supplemented by the importance of networks. Online social networks are simply human activities that ride on technical communications infrastructures of wires and chips. And wireless communication is ramping up our ability to connect. The importance has shifted from the “features” that devices offer to the connectedness they provide, as well as the company’s own ability to be agile and responsive.
The creators of future technology products and brands will no longer be engineers/scientists, but people and teams with multidisciplinary skills such as an engineer-doctor, a psychologist-engineer, an artist-engineer. Squishy, left-brain science is slowly gaining its place alongside hardcore technology, as competitive tech firms try to get an edge on what their users are thinking and buying.
The digital revolution is shredding, forever, the curtain that once hid all sorts of information about corporate behavior, operations and performance from public view. Yet, few companies are ready to handle the new scrutiny—and this transparency is proving to be increasingly costly and upsetting for companies struggling with new levels of exposure. Visibility and transparency mean that validation of a claim is rarely more than a click away; blind trust is disappearing.
THE CEO AS CATALYST
For CEOs this means two things. In the emerging leadership climate they must find ways to create the “uncorporation”—a company where the culture celebrates and nurtures individualism, heterodoxy and entrepreneurialism while continuing to meet demanding targets. Second, as IBM CEO Ginni Rometty told the Council of Foreign Relations, ”the social network will be the new production in a company.” The primary benefit of new social platforms is that today’s knowledge workers have access to each other. She believes that in the future “your value will not be what you know, but what you share.”
This includes CEOs. Calling it “the next natural resource,” Rometty predicts that data will be the basis of competitive advantage going forward. She believes it will change how decisions are made, how value is created and how value is delivered.
Two years ago, Paul Metselaar, CEO of Ovation Corporate Travel, a $1 billion New York-based travel services firm, told Inc. that the company’s employees are the company’s “special sauce,” and that he sees his role simply: “I am a catalyst for the business.”
As early as 2007, GE CEO Jeff Immelt explained to Chief Executive readers his company’s success in terms of the talent it attracts as well as trains and develops internally. “Leadership today demands that people be agile in responding to complex environments. I’m one of the top recruiters,” he said.
More recently, at Chief Executive’s Talent Summit this past October, former P&G CEO A.G. Lafley, a leader who intuitively understands the connection between people and results, said, “I care about touching people in ways that make their lives better.” How leaders work through teams and develop a culture of trust with others has become the new metric for CEOs everywhere.