Shareholders do not own companies

In the past few months, the press has carried a number of articles discussing shareholder ability to express their disapproval of CEO compensation by voting against the board. In fact, we never see this happen. Recently, over 20% of Pfizer shareholders voted against the election of two members of the board, and the press trumpeted this as an example of shareholder power. There are several reasons why this is not true. Firstly, unlike in political elections, shareholders who do not vote at all have their votes cast with management. Secondly, shareholders who really disagree with maanegement are more likely to simply sell and buy shares in another company.

If we consider the characteristics of ownership, shareholders do not have many of them. They do not have rights of disposal (in the sense of destruction), or even of access (try getting into an R&D lab as a shareholder). The reality is that companies are "owned" by top management, and shareholders simply acquire rights to dividends and appreciation. As such ownership is simply passed on, much like in North Korea. It is only regulation and legislation which keeps companies under control/

Spotting opportunities the President Clinton way

One of President Clinton's best friends is Ron Burkle. An unlikely pair, Mr. Burkle was a successful and very Republican entrepreneur when they met. According to the New York Times, they first met when Mr. Clinton was running for President in 1992 and touring neighborhoods in Los Angeles that had been set on fire during riots after the acquittal of police officers charged with beating Rodney King. Mr. Clinton noticed that some supermarkets were still open, and asked why. He was told that those stores were not burned because the owner, Mr. Burkle, treated his customers and employees fairly. Mr. Clinton asked to meet him. This illustrates how he not only observes what was happening around him, but had the curiosity to want to learn more.

His aides quickly set up a meeting with Mr. Burkle at Burbank airport. He was then a registered Republican who ran a chain of California supermarkets. The two men drove to a political event, then kept talking in the car for 45 minutes. Mr. Burkle said he came away in awe. Their relationship grew during his presidency, when Mr. Clinton was a frequent overnight guest of Mr. Burkle's. Since then, Mr. Clinton has been part of Mr. Burkle's investment funds and has made a lot of money from them.

The lesson to be learned is that Mr. Clinton notes all that he sees, is curious, finds out the answer, and then acts on the idea. Too many people are not curious or action oriented.

Irrational economics

We continue to do things which are not economically justifiable. We vote, even in places where our vote is irrelevant. We buy lottery tickets. We fear air travel, while happily talking on our cell phones as we drive to the airport. Our instinct lets us down when calculating the odds of so many things.

So if we make these mistakes in regard to such critical matters to ourselves, how reliable are our instincts when we make business judgements or decisions about people. The evidence suggests that they are not to be trusted. Perhaps this is why after more and more managers go through business education, business decisions do not get any better. Our inability to be objective in a way which removes our own psychology from the calculation means that our decisions are often not to be trusted.

Rather die than change?

All the evidence, both scientific or by observation, suggests that people would rather die than change. They keep smoking, use cell-phones while driving, eat too much, drink alcohol to excess. Yet we seem to not have learned this lesson. I see in a networking group which I chair, that members, who pay annual dues, do not update their profiles on the website even though they know that it enables them to be found more easily for job or consulting opportunities.

People resist change, perhaps because their need for security means that they cannot leave the old habits behind. Even when it is clear to any intelligent person that change is inevitable, they will not learn new skills, move to a new place, or even make new friends. Fortune 500 companies last, on average, about half the average career length of an individual, yet few prepare for that. Many senior positions are held for less than two years, yet once someone gets a new job, they almost always relax and act as though they will have the job for life.

If it ain't broke, break it!

More companies go out of business by not changing than by changing. So often the buggy whip maker keeps making better and better buggy whips while people stop using horses. While this may be obvious, less obvious ones happen every day. The magazine which keeps making graphic redesigns, but does not understand how to deal with a digital age, the onlline service (think Prodigy, CompuServe, Delphi) which stays still as the world moves on. Car companies, airlines, food companies, each looks at the situation in a frozen snapshot of time. Humans seem to have greater difficulty seeing change over a large amount of time than they used to. A few hundred years ago, when the world moved slower, people thought about the long view. This seems to be more difficult. Whether it is global warming, shifts in economic power, culture change, or technology, we seem to have less perspective than before.

To have the long view, you need a long perspective, great mental flexibility, and the ability to sit and think without preconceptions. Multi-tasking is a handicap, as are interruptions. Then assume that there is a radically different way to do everything, and look for it. It you do not make revolutionary changes, then you will eventually become obsolete. Many years ago this may have taken years, now it takes a lot less.

The Billion $ Executive

It seems that it is only a matter of time before a CEO gets a $ Billion pay package. This past week it was announced that Lee Raymond, CEO of Exxon Mobile earned a total of $686 Million from 1993 to 2005, or $144,573 for each day in his job. Of course Steve Jobs earned $775 Million in 2000, but from the appreciation of stock options (and $1 in salary).

Perhaps we should just accept that compensation is not related to value or performance. There are firefighters who earn little, but save many lives, while TV personalities earn many times what they do. Is the person who presents the network news really worth quite so many times what the person who presents the local news is? How much of their value is due to their ability, and how much to their celebrity? Is the same true of top executives? Their value becomes a self-fulfilling prophecy.