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Oct

2011

CEOs Need Courage

"Some years ago, the then-CEO of Air Products told me that it took his team two months to decide and plan layoffs, two weeks to do them, and two years to recover. When I asked why the company had done something that caused so much damage, the reply was that it was expected by Wall Street and his CEO peers. "

blogs.hbr.org/...ceos_need_courage.html

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CEO courage management stocks longterm

As these examples illustrate, CEOs not only need a new set of beliefs, they need the courage of their convictions to act on those beliefs.
As former Procter & Gamble CEO A. G. Lafley has noted, the best time to gain market share is when your competitors are in retreat. And, as common sense suggests, if you want to earn exceptional returns, you can't simply copy what everyone else is doing.
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- The best companies and the best leaders understand the real drivers of business success: a long-term perspective which focuses on customer and employee relationships as the sources of competitive advantage and an emphasis on values and ethics as guides to decision making
- What separates these CEOs from the pack is not just a more sophisticated and empirically accurate understanding of individual behavior and the sources of organizational success but also the courage to implement these insights even when, or particularly when, they seem to defy conventional wisdom.

How To Make Companies Think Long-Term

"In my latest book, Fixing the Game: Bubbles, Crashes, and What Capitalism can Learn from the NFL, I wrote about the negative impact of executive stock-based compensation on corporate short-termism. Eliminating stock-based compensation would help reduce the incentive for executive leadership to focus on the short term. But there is a residual problem which has long frustrated me. The answer finally popped into my brain (funny how that works). As usual, the solution won't be easy to pull off (but that has never stopped me)."

blogs.hbr.org/...g-corporate-short-termism.html

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shortterm longterm compensation stocks

Worried that short-term-oriented arbitrageurs will put their company in play and short-term-oriented shareholders will gain majority or effective control of the company, ending their ability to steer the long-term trajectory of the company, they focus on making short-term decisions to protect their positions. The paradoxical result is that they never get around to taking those long-term-oriented decisions.
It follows that companies should value shareholders relative to both the volume of shares they hold and the length of time they have held their shares.
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- In order for the takeover to succeed, the longer-term shareholders would have to see the takeover being in their interest too.
- This would enable the company management to focus to a great extent on the long term without threat of the short-term investors controlling its destiny. But it still maintains the discipline of long-term investors. If they aren't satisfied, they can bring more voting power to bear than any risk arbitrageur.
- A time-based voting system would cumulate the shares from the longest held shares to the shortest and determine the purchase price of the median share.