So you say a super-smart, superstar, maybe even superhuman CEO runs the business of a stock you own? That's great, but I hope you haven't relaxed too much about that stock's future performance. Solid, smart management (and visionary leaders) are legitimate elements of positive investment theses, but even the best chief executive officers are as human as the rest of us and can make mistakes -- sometimes even massive ones.
Further, chief executives who practice the quiet, far less celebrated art of humility may actually be the best corporate stewards over the long haul.
Tripping over ego trips
Deep discussion about Netflix's
The Netflix controversy -- and subsequent subscriber exodus -- should remind us of the dangers of CEO hubris. Commentator Felix Salmon recently penned his thoughts on the Netflix situation for Wired, stating that Hastings let the $300 stock price "go to his head" and said certain "big-money deals" to outbid Time Warner's
Recent bungled decisions made on Hastings' watch have raised consumer ire, but at least they're not nefarious. However, another corporate leader who could use a serious dose of humility is News Corp.'s
We Americans adore the superstar CEO ideal, following a flashy and iconic figure who can do no wrong (and surely will lead our companies' stocks to outperform the market and everybody else!). However, the less exotic truth is that more-humble chief executives who keep their egos under control often do a better job at their posts.
In 2001, Jim Collins' Good to Great examined 1,435 companies. It observed that the 11 corporate entities that had made the jump from "good to great" over a 40-year period were headed up by relatively unknown chief executives as opposed to "the one genius with 1,000 helpers."
In addition, Collins argued, "We found that for leaders to make something great, their ambition has to be for the greatness of the work and the company, rather than for themselves ... Celebrity CEOs, at those same decision points, are more likely to favor self and ego over company and work."
Researchers from John Molson School of Business at Concordia University in Montreal are currently expanding on their 2009 study that reveals a disturbing conclusion: Management ego is a better indicator of the possibility of financial fraud than corporate governance practices. They connect "managerial hubris" to bad corporate decisions that destroy value.
Hubris vs. humility
Granted, it takes a fair amount of ego to be a chief executive, not to mention summoning the cojones to actually found a company. The late, great Apple
Regardless, the individuals who are able to keep their egos at healthy levels and under control, and remember their own humanity and lack of perfection, probably have a better chance of surviving all kinds of economic storms and corporate misfortunes over the true long haul.
Schultz's new humility hasn't hurt Starbucks one bit; in three years' time, the stock has more than quadrupled.
As investors, we should admire the smartest chief executives, and entrusting our investments to the best of them is often part of building a winning portfolio. However, we need to beware the siren song of the cult of personality. Chief executives are people too; if ego seems to be careening out of control into unbridled hubris, it's time to wonder if these people really are the best people to be stewards of our hard-earned money. In many cases, they may not hold up to the scrutiny.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.