I suppose we can credit Lee Iacocca for the modern phenomenon of CEO-as-celebrity, for it was Mr. Iacocca, after pulling Chrysler back from the brink of bankruptcy, who morphed into the most recognized CEO since John D. Rockefeller.
Since Mr. Iacocca's Chrysler revival (at least during his tenure), a small cadre of celebrity managers, led by Microsoft's (NASDAQ:MSFT) Bill Gates, Apple's (NASDAQ:AAPL) Steve Jobs, and Berkshire Hathaway's (NYSE:BRK-A) Warren Buffett, has emerged to bask in the illuminating glow of the media spotlight. To anyone over 30 with a modicum of business exposure, this trio's celebrity easily eclipses that of the cut-and-paste entertainers who dominate TMZ.
When person trumps party
Like Mr. Iacocca before them, Messrs. Gates, Jobs, and Buffett are forceful visionaries (a hallmark of the celebrity CEO). Does that mean investors should automatically seek a forceful visionary? CEOs can make great companies, to be sure, but they can also break them: Tyco International's disintegration coincided with the disintegration of its profligate CEO, Dennis Kozlowski. Worldcom was sunk by its serial dealmaking CEO, Bernard Ebbers. Enron's collapse was the denouement of Jeffrey Skilling's shenanigans.
Setting Mr. Buffett aside, the most fertile fields for forceful visionaries are those where new-product development is crucial and where immediate action is a necessity -- communications equipment, computers, software, and aircraft come immediately to mind.
Is it any wonder, then, that investors fret over Steve Jobs' health, believing he and Apple's fortunes to be inextricably tied? After all, it was Mr. Jobs who decided to commit Apple's resources to the iMac. Although the iPod was a late entrant in a crowded market, it was a raging success. Ditto for the iPhone, which sold more than 20 million units in fiscal 2009, nearly doubling 2008's tally.
But let's not forget that it goes the other way, too. Remember Motorola? Its last hit was the RAZR, introduced in 2004 -- a millennium ago, technologically speaking. Who can name Motorola's CEO? (Actually, there are two: Greg Brown and Sanjay Jha. To be fair, they've only been sharing the post for about a year.)
Steve Jobs and Apple are on a roll, but technology is ruled by extremes ... particularly extreme failures. Of the nearly 2,000 technology initial public offerings since 1980, only 5% account for more than 100% of the $2-trillion-plus in wealth creation through 2004, according to Stephen R. Waite's book Quantum Investing.
When party trumps person
The forceful visionary's hit can make a company while his miss can sink it. If you can stand the drama, fine. But if you can't, sectors where the goals are more evolutionary than revolutionary and where performing the ordinary is key might be more to your liking. Meat processing, conglomerates, and consumer brands come readily to mind.
Many successful corporations, especially those that have performed well over the long haul, are masters of the obvious and the mundane. The following companies are exemplars of the obvious and mundane, based on their long, reliable, if unremarkable, histories.
|
Company |
Business |
|---|---|
|
Leggett & Platt (NYSE:LEG) |
Diversified manufacturer |
|
Brown-Forman |
Alcoholic beverages |
|
Dominion Resources (NYSE:D) |
Electric utility |
|
Hormel Foods (NYSE:HRL) |
Meat processing |
|
Altria (NYSE:MO) |
Tobacco products |
It's unlikely any of these companies' CEOs will be featured on 60 Minutes. With any luck, they never will, according to James March, a management professor at Stanford.
"It is hard to tell the difference between two different light bulbs also; but if you take all the light bulbs away, it is difficult to read in the dark," says March. "What is hard to demonstrate is the extent to which high performing managers (or light bulbs that endure for an exceptionally long time) are something more than one extreme end of a probability distribution generated by essentially equivalent individuals."
Extremes can be very good, and very bad, so why not the durable middle? In any company where the business model favors evolution, the candidates for the top job will likely resemble each other in education, skills, and temperament. But that's OK; all that matters is that the someone in charge be competent and that the company be able to survive without that competent someone.
How many Lee Iacoccas are there? Looking at Chrysler today, I'd say not too many. How many Steve Jobses, Bill Gateses, and Warren Buffetts are there? Apple, Microsoft, and Berkshire shareholders will discover in due course.
