The Crazed Cult of CEO Worship

Too few CEOs are worth the millions or billions in payment they receive. Unfortunately, too many investors often assume otherwise.

Superstar or supernova?
There are excellent CEOs in corporate America who perfectly deserve "superstar" status. They're smart, successful, innovative, visionary, and even wise, on occasion. Sometimes they even wear black turtlenecks.

Berkshire Hathaway's (NYSE: BRK-B  ) Warren Buffett, Apple's (Nasdaq: AAPL  ) Steve Jobs, Amazon.com's (Nasdaq: AMZN  ) Jeff Bezos, and Netflix's (Nasdaq: NFLX  ) Reed Hastings all spring to mind as examples of superstar CEOs. We investors love to read about these folks; we'll turn up the TV volume when they're being interviewed, and hang on their every word.

Still, there are plenty of CEOs who seem more "supernova" than "superstar." Neither Carly Fiorina nor Bob Nardelli are known for great tenures at Hewlett-Packard (NYSE: HPQ  ) or Home Depot (NYSE: HD  ) , but both did pretty darn well financially in those posts, particularly after receiving huge golden parachutes upon departure. Abercrombie & Fitch's (NYSE: ANF  ) Mike Jeffries got called out as one of the highest-paid CEOs in the U.S. last year, raising legitimate questions about whether his compensation appropriately reflected his company's lagging performance.

Mean doesn't mean good business
Last year, the average CEO made 263 times the wage of the average U.S. worker. Regardless of outliers, plenty of CEOs' performance is actually pretty average, even if the pay and respect their title commands is not.

Maybe it's time to take that default respect down a notch. Let's not assume that just because somebody's sporting a CEO title, they naturally perform excellently, especially when reality doesn't back up that assumption.

A CEO is as good as the people who surround him or her. Sometimes, a worker on the customer service line or a person working in the mail room could have a better idea of the biggest threats or opportunities facing a company.

Studies back up these arguments. Although extraversion and even extreme ego are very often associated with a "good," superstar-style CEO, Harvard Business School recently collected data suggesting introverts can make equally good corporate chieftains. According to the study, such leaders are "more likely to listen to, process, and implement the ideas of an eager team."  

As far as the compensation issue goes, the Harvard Business Review recently reported on a study arguing that high levels of compensation can create ruthless, non-empathetic leaders. Research on "power holding theory" shows that people in positions of power over others often rationalize unpleasant or unethical behavior. An empathy-free leader who fosters a ruthlessly mean workplace probably will not succeed.

What a load!
If you're like me, you probably have no problem with high-performing CEOs taking home  handsome salaries. Enjoy your chateau, dude -- you earned it. However, the assumption that anyone granted a CEO title should always make big bucks, whatever his or her performance, often ends poorly for shareholders.

Frankly, I consider CEO worship, and the excessive compensation it often breeds, a steaming load of garbage. Investors should question whether the folks leading their companies are underworked and overpaid . What do you think? Sound off in the comments box about whether we need to knock CEOs off their collective pedestal.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Berkshire Hathaway and Home Depot are Motley Fool Inside Value recommendations. Apple, Amazon.com, Berkshire Hathaway, and Netflix are Motley Fool Stock Advisor choices. The Fool owns shares of Apple and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (19)

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  • Report this Comment On October 29, 2010, at 5:13 PM, CatKnipND wrote:

    It would also help if the CEO actually knew about and used the product of the company. I know of at least one instance where a CEO was hired that knew very little of what the company was about, tried to make it into something it wasn't and was fired, leaving a mess that the company is trying to fix. Hopefully, those that are there now will be able to fix the mess before the users of the service get fed up and the company goes belly up.

  • Report this Comment On October 30, 2010, at 12:26 AM, binkenhiemer wrote:

    Someone getting paid well for doing an excellent job is just fine, but take it out in a bonus. Oh, and stop the stock options, let them buy into the company directly.

  • Report this Comment On October 31, 2010, at 6:39 AM, midnightmoney wrote:

    How about a maximum wage law?

    How about a state-administered ethics exam as a prerequisite for entering business at all, the transgression of the principles of which would result in mandatory fines or the removal of scum-bag from his or her position. Would apply to all, not just ceos, who are only a fraction of the problem, which is greed, not ceo worship.

    In the absence of real answers, the heavy hand of the law might just work. What after all is a government for?

  • Report this Comment On November 01, 2010, at 12:22 PM, stan8331 wrote:

    I think the answer is to enact laws and rules that enhance the power of long-term shareholders. Far too many CEO's and Boards do not see themselves as working for the owners of the company. There is a need to be careful to avoid empowering raiders or short-term shareholders, but the lack of control that long-term shareholders have over companies under our current system is a large part of the problem.

  • Report this Comment On November 01, 2010, at 2:07 PM, lemoneater wrote:

    "A CEO is as good as the people who surround him or her. Sometimes, a worker on the customer service line or a person working in the mail room could have a better idea of the biggest threats or opportunities facing a company." :) I just had to smile because I work as a CSR, and in the mail room, in addition to another duty at my company.

    My company isn't publically traded, but even so, I felt a sense of satisfaction when one of my suggestions was taken. We have two major categories of customer, but our website used to only work for one category. I suggested we tailor the site with two separate areas for

    each category of customer. It was not a brilliant idea, but sometimes even simple ideas are worth suggesting. If a website is so confusing that customers call multiple times with the same or similar questions, redo the website! Save on man hours, call costs, and loss of good will.

  • Report this Comment On November 01, 2010, at 10:47 PM, starbucks4ever wrote:

    I can only make this one comment. CEO worship will end when people begin to buy stocks for the right reasons - because they think the CEO can deliver exceptional performance. For that to happen, prices must be allowed to drop, and money printing and government support of the stock market must end, because currently everybody is buying stocks for the wrong reasons - to save money from inflation, to take advantage of the Bernanke put, or to earn 7% a year that Jeremy Siegel has promised to bagholders. When the market gets rational, there will be a demand for good CEOs, and conversely, while we have a market drunk with government's liquidity, Buffett and Jobs will remain exceptions.

  • Report this Comment On November 02, 2010, at 6:58 AM, TMFLomax wrote:

    Thanks for all the great thoughts, everyone! I definitely agree on things like, CEOs who KNOW their products and pushing for more rights for long-term shareholders.

    zloj, I like your comments, "when the market gets rational" and "when people begin to buy stocks for the right reasons" -- it is true that there is still a lot of irrationality out there and it extends to this issue. Good thoughts on this (and yeah, thanks for mentioning that some of the government intervention figures in as well).

    lemoneater, thank you for sharing your story! I think intelligence from the front line in such positions is HUGE when it comes to customer experience particularly, and can often be missed when management gets removed from things. And indeed, sometimes simple answers ARE the answer!

    Best, Alyce

  • Report this Comment On November 12, 2010, at 5:13 PM, PIcolano wrote:

    Perhaps shareholders need to take action and sue the Board of Directors of certain companies for abandoning their fiduciary duty to the companies they serve. A few significant lawsuits to high profile companies, and a director will give better consideration to the pay structure of a CEO who is not worth their salt...

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