by Ken Fisher
Paying for It—Literally
Or just buy a small firm (if you have the money). It’s basically a one-man private equity transaction. This can be easier than being a founder. Buy it, fix it, and make it huge—like Warren Buffett did with a tiny textile firm he built into Berkshire Hathaway. Or like Jack Kahl when he bought a tiny plumbing products firm, Manco, in 1972 for $192,000. One product they had was an unassuming, silver industrial tape that was versatile. He rebranded it “Duck Tape” and gave it a duck mascot. Kahl sold Manco to the Henkel Group nearly three decades later when sales topped $180 million.9 Not bad!
Be the Go-To
Many CEOs come from VC, private equity, and major consulting firms. Just as I got the job when Material Progress faltered—because I knew the VC people—you can, too. Had I not been too young and inexperienced, I might have kept that job permanently. One VC firm that invested in Material Progress was Boston-based Ampersand Ventures. Among its young associates assigned to MPC was a chap named Steve Walske. Steve and I spent lots of time together then and were pretty good friends. Great guy. Smart. Savvy. He knew Ampersand’s holdings well.
One holding, Parametric Technology Corporation, a Boston-based enterprise software firm, was struggling. Steve quit VC to run it. When he became CEO in the early 1990s, it was a public stock with a total market value of about $100 million. By then, he had the chops to step in as a full-fledged CEO. Before he left in the late 1990s, it grew to a market value of more than $10 billion.
Coming from a VC background, Steve had a great CEO career, prospered, and split. One reason to work for a VC firm out of school isn’t to do VC but to bide your time until one of its wobbling portfolio companies becomes an opportunity for you to be a CEO, like Steve Walske. You can do the same thing from a major consulting or private equity firm.
Get Recruited
The final path I propose sounds strange and is perverse, but it works:
Take some acting classes.
Study recruiting firms (aka headhunters).
Don’t recruit low-end firms, but top-tier executive search firms like Spencer Stuart (www.spencerstuart.com) or Russell Reynolds and Associates (www.russellreynolds.com). When boards need new outside CEOs, this is where they go. Recruiters and board members will disagree with me completely about this, but the process is pretty simple and superficial. It starts with resumes, goes to telephone interviews, in-person interviews, background and reference checks, and then interviews with the board.
As such, it’s more about interviewing skill and the appearance of management skill than real leadership skills. I’ve seen blokes I wouldn’t hire as a dogcatcher get hired repeatedly as CEO this way without ever really doing much in real life because they’re dynamite interviewers. This is where acting comes in. Acting helps you make a great first impression and bowl someone over briefly.
CEO recruitment isn’t pretty. Recruiters think they can see through a gilded-lily resume. Some may, but many can’t. If you haven’t been CEO yet, those who can’t are your market. You can gild your resume by packaging it well. It isn’t lying—it’s packaging. I’ll bet two-thirds of you reading this book not only know a lot more about packaging a resume than I do but have done it multiple times. If you haven’t, there are books on this trivial part of job searches.
AIM SMALL . . . AT FIRST
You aren’t trying to start as IBM’s CEO. You want a tiny private firm with an external board needing someone to come fix it. You needn’t be any better than I was when I was at Material Progress to make your own material progress.
Folks who do this well never stop interviewing or marketing themselves to executive search firms—never ever. Once you’re CEO of one tiny private firm, immediately start interviewing at firms twice the size. You can’t do that through the search firm that got you the first position. They can’t and wouldn’t want to take you away from where they just put you. But you can market yourself everywhere else. Right after becoming CEO of a 20-person firm, take to lunch every recruiter you can find. Keep updating them on your firm’s progress. You want to be off to a bigger CEO job within two years so you’re not too associated with the lousy little firm you’re actually running and its faults. Keep moving. Never stop. Don’t worry about leaving the smaller firm behind. You can make a lot of progress there in two years, just like I did at Material Progress in nine months.
I saw one guy—great at this—who to my certain knowledge was a former securities criminal (whose name I leave out so he won’t sue my sorry arse). He used this process to get four CEO jobs of increasing size in eight years—all through headhunters—one he used twice. He did OK at these jobs and never broke the law again, as far as I know. Once he made it past the first job, he never really got background checked in a way that would have uncovered his past. My point is, for this, interviewing skills are more critical than any other skill.
Another guy—I like him, nice guy—but he’s a rotten leader. He used this process to go from running a company division that was no good before, during, and after he was there, to running a string of progressively bigger firms until he was selected to run a Fortune 100 firm, which he promptly led to be taken over—giving him a great golden parachute. I love the guy, but he couldn’t manage his way out of a paper bag—no leadership skills at all, tries to lead from the back. Couldn’t analyze a pair of dice for their dots! Never kept a job more than two years from when I met him. But he got progressively bigger CEO jobs and pay because he interviewed so well and was so personable, charming, engaging, and made you believe him—at least long enough. He was also great onstage as an actor. Take a few acting classes. They help. You can do this.
THE BIG PAYDAY
Your goal? Big-firm CEOs (and some smaller ones) collect big pay, stock options, deferred comp (salary set aside in tax-advantaged ways), and other perks. Smart CEOs negotiate great terms and their potential exit package—up-front.
Who makes the most? Table 2.1 shows America’s 10 best-paid CEOs in 2015. Note: The top 10 names change, sometimes radically, year-to-year, based on which industries flew high, who personally blew up, or who negotiated the best terms. In this book’s first edition, the top 10 (from 2007) was heavy on high finance, featuring Morgan Stanley’s John Mack, Goldman Sachs’ Lloyd Blankfein, and Merrill Lynch’s John Thain. All are out, and no bank or brokerage CEO cracked the current top 30. Energy and natural resources firms also featured prominently in 2007—with oil and commodity prices down the tubes now, none made 2015’s top 10. Only one of 2007’s highest-paid made it to 2015’s list: CBS’s Leslie Moonves. CBS is the only company still in the top 10, too. Lots of flux here—well-paid career risk.
Table 2.1 Top Paid CEOs in 2015
CEO Firm Total Compensation
David M. Zaslav Discovery Communications $156.1 million
Michael T. Fries Liberty Global $111.9 million
Mario J. Gabelli GAMCO Investors $88.5 million
Satya Nadella Microsoft $84.3 million
Nicholas Woodman GoPro $77.4 million
Gregory B. Maffei Liberty Media & Liberty International $77.8 million
Larry Ellison Oracle $67.3 million
Steven M. Mollenkopf Qualcomm $60.7 million
David T. Hamamoto Northstar Realty Finance $60.3 million
Leslie Moonves CBS Corp $54.4 million
Source: Equilar, “Equilar 200 Highest-Paid CEO Rankings.”
Negotiate great terms up-front—including your exit package.
Many of these aren’t household names. Ironically, top pay doesn’t always link to which firms did best. It often reflects who had great career prospects and could have been CEO at any of many firms, but took a huge career risk to live for a few years in head-on-chopping-block status—betting his career on what happens in a short time span. Stanley O’Neal gambled his future and lost. History may show Marissa Mayer did the same. Probably no one will pay them again to be big-time CEOs, but they negotiated terms up-front paying them for that risk.
Media Whining
Beware: CEO pay often leads to media harping, “They aren’t worth it.” Maybe, maybe not. But it’s up to their board (and to a lesser extent shareholders), so complaining won’t help. If you don’t like it, don’t buy the stock. If you like it—great! Maybe this is your road. The media was apoplectic when Lee Raymond, former ExxonMobil CEO, retired in 2005 with a $351 million exit package.10 Did he deserve it? I don’t know. I’m sure most, if not all, was part of a contract negotiated beforehand. It works like this: I make a deal where if I do this, the stock does that, sales and profit do the other, then I get paid X, Y, and Z. The formula says what I get if you fire me or I quit. Both sides think the deal favors them. It usually works better for one side than the other.
Timing helps. In 2005, Exxon recorded the largest single-year profit of any firm, ever—$36 billion.11 Effectively, Raymond got 1 percent of that. He oversaw the big Exxon-Mobil merger—no small feat. During his 11-year reign, the stock rose about 400 percent.12 Put simply, $1,000 in the S&P 500 over the period became $3,323, but $1,000 in Exxon became $5,000.13 Millions of Exxon stockholders—individuals, institutions, pension funds—benefited. Don’t forget about Exxon’s 80,000+ employees14 and their pay and retirement assets received. If most big firms could guarantee their stocks and firms would do so well for so long, they would eagerly pay Raymond’s compensation or more. The problem is, there’s never certainty.
Big pay seems “obscene” to some, especially in this era of Occupy Wall Street and the vilification of the “One Percent.” If that’s you, this isn’t your road. Most observers aren’t so upset at big pay for successes, but they really hate failed CEOs (perceived or otherwise) getting a huge check going out the door. They hate “rent-seeking” CEOs in banking and finance even more. Crucify them! Still, if you become CEO, fail, and get crucified publicly—you still almost always end up well off financially. (Unless you pull a Hank Greenberg and don’t diversify, but even he had $28 million left after AIG tanked.15)
CEOs AND SUPERHEROES
It’s tough becoming CEO, and tougher lasting long-term. One way to boost your odds is: Think hero. Be a swashbuckling risk taker—the one with vision, fearlessness to pursue it, and fortitude to recognize mistakes, alter course, and plunge fearlessly ahead again. Good heroes make exceedingly lonely decisions, but sell the board, employees, and shareholders on why the road less taken is better. Those unpopular decisions can flop, but real heroes usually bounce back.
One former superhero CEO was GE’s Jack Welch (net worth $720 million).16 Welch became CEO in 1981 when GE was a great company, turned it upside-down (read: layoffs), and made it greater. Welch didn’t just trim payrolls—he decimated whole business lines. To him, if GE wasn’t a world leader or a close second at anything, it shouldn’t be in that business. Throughout his career, he fired the bottom 10 percent of managers yearly.17 While those fired managers likely weren’t pleased, there are few CEOs in modern history as well regarded as Welch.
Being a hero is a good path to the CEO chair.
Nonheroes shy from massive restructuring, viewing major overhauls as risky. They fear backlash. Employees and the media hate terminations. Welch wasn’t frightened. Now, many emulate Welch’s style, which fared well for GE—$1,000 invested in GE during his 21-year reign became $55,944, whereas in the S&P 500 it became $16,266.18
Ken Iverson, former CEO of Nucor, was among the all-time greatest CEO heroes ever. People adored him. Heck, I adored him. Iverson brought Nucor back from bankruptcy’s brink in the 1960s and built Nucor in an otherwise unprofitable world of steel. Nucor is today America’s largest steel firm. He did it the old-fashioned way. He developed technology, low-cost production, and novel management techniques. He challenged conventional steel head on, underpricing them—eating their lunch. He built a lean, mean machine and a model of superior management—a model now globally emulated.
American steel was dying for decades from bloated bureaucracy, union strangulation, and government protectionism. Iverson decentralized decision making, axed executive perks, and mandated only four management layers between factory workers and him. He demanded innovation—from everyone. His employees loved him and would have marched off a cliff for him. His story is in a truly great 1991 book, American Steel, by my friend Richard Preston.
I first met Iverson in 1976. Few could then see Nucor’s future. But Iverson simply bowled me over, and I’m not that easily impressed. He was bigger than life. Within minutes he made you a believer. He was more comfortable in the mill with his crew than in fancy office buildings—but he was comfortable there, too.
And that quality is key to being a hero-CEO. You must make your employees adore you while also being seen as a tough son-of-a-bitch. You must be fair and even-handed, though heavy-handed when needed—but always without a hot temper. Willing to take the big risk but also shrewdly calculating, not scheming. A man of the common people who is as happy or happier with his smallest customer or lowest-level employee as with the board! Usually a hero-CEO sets his compensation up in advance so he trades off base compensation for big upside. Then when he gets rich, few complain. Most wannabe hero-CEOs fall down on one or more of these qualities.
Carly Fiorina, ousted from Hewlett-Packard in 2005, fell short as a hero-CEO. She adorned TV and magazine covers—widely seen as a glamorous hero. She led HP through its merger with rival Compaq. Initial results were rocky, as mergers often are. At first, she seemed bigger than life. But HP’s culture was built on the “management by wandering around” style of cofounder David Packard. She seemed aloof. If employees don’t adore you, a wannabe hero-CEO won’t endure. She seemed more comfy with media and her board than her smallest customers and lowest employees. It’s here, in my view, she fell short and lacked support from underneath when things got tough—so she got axed. Of course, she made out OK with a $21 million parting gift.19 But in my opinion, no one will ever make her CEO of a top-tier firm again. Done. But she still kept busy, running (and losing) first for US senator from California, then the Republican nomination for president in 2016. Turns out, she was no better at politics than running a business. America didn’t adore her any more than her employees did.
Fiorina’s failure leads to a basic rule: Every CEO, every month, must spend time with normal bread-and-butter customers and bottom-of-the-org-structure employees. Forget this and you’re lost. Ivory-tower CEOs get by with it briefly, easing their own lives—but eventually fail. Top CEOs never forget what makes the firm tick. It’s why employees adore hero-CEOs—they aren’t aloof. They seem like one of troops—they are comfortable with and interested in them—but are still bigger than life.
Mind you—Fiorina, O’Neal, Yahoo!’s Terry Semel, Countrywide’s Angelo Mozilo, and so many others who tumbled from their thrones still traveled this road well. Even if you don’t turn out to be a lasting hero-CEO like Welch or Iverson, you can still make huge bucks, bank it, and retire—or get a paid board position! Lots of firms will hire former CEOs for their boards.
To be a hero-CEO, spend time with your smallest customers and lowest employees.
THE BEST PART
The big pay isn’t the reason to travel this road. The greatest part about being CEO is helping build people to be more than they were when you met them and more than they thought they could or would be—very rewarding. Money aside, once you get the feeling real leadership imbues (that I got at Material Progress Corporation), you become of the people—your people. You can’t get that out of your system. Once you become that kind of CEO, it takes you over.
This is a road I encourage anyone to aspire to because if you’re a real success, you help people and build something of social value beyond the firm’s financials. A GE or Microsoft provides huge social benefits to our world. Were they run badly, it would be terrible. Ditto for smaller firms—where you may start on this road. It’s a terrible waste when a CEO manages badly. You see that happen and you know it’s bad. You can do better than that gal or fellow. She or he wasn�
�t leading from the front. Remember my experience—you don’t need to have tremendous training to manage, just focus first on showing up, caring, and leading from the front. It’s a caring position if done right.
EXECUTIVE EDUCATION
To continue your journey on this road, these books can help:
Your Inner CEO: Unleash the Executive Within by Allan Cox. The author provides case studies and practical tools helping you see yourself and reinforcing the traits necessary to run businesses from tiny to huge.
What the Best CEOs Know by Jeffrey Krames. This is a great tutorial on how to be a hero-CEO—lots of examples from past celebrity CEOs.
From Day One: CEO Advice to Launch an Extraordinary Career by William White. A guide for ride-alongs (Chapter 3) seeking a switch to CEO. It covers creating great first impressions, managing above and below you, and networking.
How to Think Like a CEO: The 22 Vital Traits You Need to Be the Person at the Top by D. A. Benton. Built from more than 100 CEO interviews, Benton’s book takes you through the personal qualities, like humor, helping you on your way and at the top.
The Five Temptations of a CEO: A Leadership Fable by Patrick Lencioni. This new, single-sitting read is impossible to put down and exposes the traps awaiting you, like putting yourself first or confusing being liked with leadership.