
The Decline of the Baronial C.E.O - __derek__
https://www.nytimes.com/2017/06/17/business/ge-whole-foods-ceo.html
======
not_that_noob
I think this parallels the situation in the startup economy. Founder-CEOs are
the norm today, as opposed to the older baronial CEO types who walked, talked
and looked like old school VC firm partners.

It used to be that you needed a lot of capital to enter markets - you had to
build a data center, hire people, build and sustain in the hope of a market.
For that you needed money, and for old school VCs to feel comfortable, they
wanted someone in their mold, and who they could trust. So founders became
CTOs and VPs of Engineering, and picked someone the VCs could get behind to
raise money.

But with the cost of starting a company plummeting, founders no longer have to
show this deference. And as some of these companies succeed, their founder
CROs are now the new rock stars. And a new breed of VCs asks looks for
performance metrics and worries less about fitting a theoretical mold. If
there is a mold, it's the founder-CEO in their minds, not the old school
baronial CEO.

I think a similar dynamic operates in larger companies as well. The necessity
of capital acted as an automatic restriction on competitors emerging.
Companies could charge high prices, make higher profits and build private
five-star hotels.

With the cost of building a business dropping however, markets are more
competitive than ever, and it's much harder to charge the prices required to
sustain profit growth expectations. And investors of course will have no
patience for the lavish perks.

The times they are a changin'.

~~~
owebmaster
> It used to be that you needed a lot of capital to enter markets - you had to
> build a data center, hire people, build and sustain in the hope of a market.

I'd say that this is still the norm with some lucky exceptions in the Valley,
but the Valley itself is a huge capital investment (public and private). If
you look world-wide, nobody can compete with Facebook, Google or Apple, even
with high investment in data centers, people, etc. Our economical system gives
a lot of benefits to monopolies.

~~~
rtpg
Perhaps more importantly nowadays with this gen of unicorns: Companies are
willing to spend a looooot more on acquisition of users, beyond the actual
value of the users. Mainly to try a monopolistic play.

Uber is the typical example of "turn money into market share", though you can
see a lot of SV companies nowadays spending a huge amount in this space.

------
gwern
Nothing about CEO salaries or compensation or wealth, though, which would seem
to be the true measures of CEO status.

~~~
maneesh
gwern! Are you the same from gwern.net?

I think this article made clear that Fortune 500 CEOs are getting paid a lot
--- more than in the past. For example, "So while boards are still willing to
dole out huge golden parachutes to C.E.O.’s, even if they fail, they’ve become
much more generous with money than they are with additional time."

But just like any form of 'money,' it's not just dollars. Money is a form of
status, but so is power, reputation, stocks, and more. It seems like 'staying
power' would be a truer form of status than 'cash' alone.

Frank Underwood once said: "Money is the Mc-mansion in Sarasota that starts
falling apart after 10 years. Power is the old stone building that stands for
centuries." Not that he is real or anything, but it's a powerful quote.

~~~
gwern
(I am.)

CEOs may have shorter durations, but that may be illusory in that they can be
engaged in a revolving door between companies or the public/private/academic
sectors. I'm also not too impressed by the article's talk about opulent
offices seeming old-fashioned - opulence is relative, and a personal
Gulfstream, however spartan, that one is riding to one's mansion in Tahiti is
far more opulent than some marble floors or dumbwaiters in Michigan. If Jeff
Bezos has a table made of a door from Home Depot ( _cough_ ) does that make
him any less baronial? Compensation, however, and cases like Snap going public
with 100% non-voting shares are far more indicative of the true power of CEOs
than some office design or hamhandedly publicly bloviating & dabbling in
politics (rather than donating behind the scenes).

------
daxfohl
> Not only did Mr. Immelt have his own bathroom

Crazy that this is a big enough deal to be worth mentioning in the article.

Honestly, after several years of working from home, the whole bathroom
situation has perhaps been the hardest part of corporate life to get used to.

------
bogomipz
From the article"

>"Google’s Class B shares have 10 times the voting power of normal shares,
enabling the founders, Larry Page and Sergey Brin, to retain control of the
holding company Alphabet without owning a majority stake."

This implies that these two are the only two posses shares with voting power,
is this accurate?

The article also references FB and the consolidation of voting stock in one
individual. My question is what is the protocol if something were to happen to
person or persons who retain all these voting shares - death, or incapacitated
etc?

~~~
hkmurakami
Iirc Schmidt Page Brin combine to control the majority of votes. This tight
control will lapse when the Schmidt estate goes through a generational estate
transfer event and liquidates shares to conver taxes (since he is the oldest
of the three).

~~~
__derek__
In anticipation of that, though, the three could form a new share structure
that consolidates power in Brin and Page.

------
jorblumesea
It's not just CEOs, all white collar workers are changing from a somewhat
hallowed position to just another job. As blue collar jobs disappear
competition increases for the positions left and many white collar office
positions seem more like factory workers than knowledge workers. It used to be
that a college degree would guarantee you a job, now it guarantees you an
internship at best.

------
devoply
Only ones it seems left with privilege are those who have a lot of capital.
Everyone else has been reigned in to serve them and their needs and interests.
Which I guess is how meritocracy works.

~~~
nostrademons
Nah, folks with capital think that they're being screwed too. It's very hard
to find investments with positive inflation-adjusted returns, and when you do,
the perception is that they're often overvalued and hence quite risky. Public-
company shareholders who thought they had a steady dividend-paying income
source are finding that even the steadiest dividend-paying income sources are
going out of business or getting bought in transactions that shareholders have
little leverage on.

What's really happening, I suspect, is that we're living in a time of great
change where all existing institutions are steadily decaying and eventually
collapsing. And so if you can identify a group as a class and write about them
in a news article, chances are they're getting screwed. Plenty of individuals
are _not_ getting screwed and are profiting massively off this, but they
belong to groups that didn't have labels a decade ago, like "tech startup
founder" or "import/export business owner" or "Chinese contract manufacturer"
or even "data scientist". These individuals have a very strong incentive not
to crow about their success, because when everybody else is getting screwed
and you say "Oh, actually I'm doing better than I ever expected", you paint a
big target on your head.

~~~
epistasis
>It's very hard to find investments with positive inflation-adjusted returns

While I understand that you're perhaps not asserting this personally, and are
restating the words of others it's important to say that this part is
absolutely untrue. In fact, if somebody with wealth _actually_ believes this,
and isn't just using it as propaganda in class warfare, that person is a poor
steward of capital and it would be best if it were in more capable hands.
Trivial investment choices, like total-market stock index funds, have solid
returns that easily beat inflation, and little to no risk on 10 year time
scales, which is where investment should take place. If they can't stomach any
temporary negative dips, TIPS will give them that. In any case there is an
abundance of easy, inflation-positive investments out there just lying around.
Even the middle-class that have saved small amounts can get first-class
investment in index funds.

~~~
computerex
Totally agree, this drives the point home:
[https://www.fool.com/investing/2017/02/26/warren-buffett-
jus...](https://www.fool.com/investing/2017/02/26/warren-buffett-just-
revealed-the-best-investment-m.aspx)

------
hammock
Like it or not, the CEO is working class. It's a job, like yours, with a boss.
And they, like the rest of the working class, had more power in the mid-recent
past than they do today. Today, 40% of wealth is owned by 1% of the
population. And the 1% are _not_ CEOs. This capital concentration has greatly
reduced the influence of a CEO.

~~~
__derek__
It depends on what you mean by "the CEO." If we're talking about S&P 500 CEOs
(which is itself an overly broad proxy for the "corporate giants" that are the
subject of this article), they're definitely members of the 1%.[1]

[1]: [http://www.equilar.com/reports/48-associated-press-ceo-
pay-s...](http://www.equilar.com/reports/48-associated-press-ceo-pay-
study-2017.html)

~~~
erikb
I full heartedly disagree. Maybe the number "one" is wrong, maybe it's 0.1%,
but the industrial emperor is not the same kind of people as today's typcial
CEO. Today's CEOs have to be hard working, good looking, result oriented
people, just like you and me fearing to get wacked at any mistake or delay.
It's just that they live on a higher level than we, but still the same kind of
life.

The "Baronical CEO" is the kind of guy who grows a belly in his fourties, and
spends just as much time in the club with the other guys drinking and pretty
girls as in the office. This is not today's typical CEO.

However, if you want to imply that even the richest of the richest are
sh*tting their pants because they also don't know how everything will
continue, then I would agree as well. It's likely that fewer and fewer people
have a relaxed life, and those who have mostly live that way due to lack of
oversight.

~~~
eropple
_> Today's CEOs have to be hard working, good looking, result oriented people,
just like you and me fearing to get wacked at any mistake or delay._

And their failure case is a golden parachute, not penury. _Little bit
different._

~~~
erikb
I would agree with that point if it would result in CEOs being less hard
working people.

What all people want is a stable, save, maybe a little boring, position that
shows other people they are respectable and that pays the monthly bills. But
not even the highest level of employee has that safety any more. And while
they get more money even when they get fired, a fired CEO is still considered
a loser, just as you and me, and they fear being considered a loser just as
much as you and me. And maybe what increases their pressure back to the sam
level as ours is that their failure is way more public than ours. If you lose
your job and you get a new one, you can pretend everything is just as it was
before. They can not. Everybody has seen the articles in the news paper and
know some (true or not) reasons for why they failed.

~~~
eropple
A fired CEO of a company in the orbit we're talking about (I mean, I'm the
"CEO" of a company, but I obviously am not pulling in a hojillion dollars a
year in revenue, so, different thing) doesn't need to ever work again. A CEO
might be "labor", sure, but they are compensated sufficiently to _de facto_
buy into _capital_ in a way even people not too many percentiles down never,
ever can. This is a difference of kind.

The question here isn't "do you work hard," it's "are you labor or have you
capital", and the difference when the latter is true is _overwhelmingly
transformative_ compared to when only the former is true.

~~~
prostoalex
There's some survivorship bias due the "orbit we're talking about".

The reason the new CEO is coming into place is that the old one didn't work
out as intended, and the board has set its sight on someone they think would
do a better job. Such desirable person is usually not living off unemployment
benefits, is comfortable financially already, therefore has little motivation
to jump ship unless he gets a substantial increase in pay.

The board could potentially hire via an ad in the paper or a temp agency
advertising a salary at 50c above minimum, saving stockholders (themselves
included) massive amounts of money, but yet even the most financially stingy
and cost-hawking shareholders - private equity folks and activist shareholders
- usually don't resort to that.

~~~
eropple
Sure.

If they're under _consideration_ for such a job, what I said more often than
not holds true, too. We're fundamentally not talking about "labor" in the
sense that erikb was using it, we're talking about labor-with-capital-access
and that's just a straight-up different story.

------
Ericson2314
As others have said, taking such a superficial shift as indicative of power
dynamics is ludicrous.

I wonder, how much can culture and fashion, rather than technology or
globalization or something else directly effecting the market, change this?
Could it simply be that mad men shmoozing is out, "data driven" workaholism is
in?

~~~
cylinder
As the article alludes, economic growth makes things easy for idiots. Once
stagnation sets in, competition rises and the focus is on productivity growth
and efficiency which means tech and cost cutting. Technology sector would not
be doing nearly as well as it is if we had 6% GDP growth.

------
sgt101
There are lots of issues that this article doesn't touch on. I believe that
large companies have become exponentially more complex as IT has come to
underpin business processes. Competition has intensified both for markets,
people and capital.

The CEO's job has become, in my perception, undoable. Compensation has risen
because the incumbents are trying to defenestrate themselves on a daily basis,
and yes, yes there is a queue of eager applicants for the hot seat, but almost
all of them are dribbling lunatics. The sensible, committed super sharp of
suite c start shouting and screaming and fighting as soon as it's mentioned
that they might be given the CEO role in the future - they know that it's a
nightmare.

The problem that boards have got is that the complexity has created an
ecosystem of corporate types, it's become rich enough to support niching and
evolution, and what we see is The Red Queen. Peacock tails of fashion, pose
and fucking powerpoint decks dominate. Not only in the corporate itself but
amongst the swirling flock of carrion feeders that surround it.

I've been witness to/unable to hide from three "blue skys" exercises in
corporate structure and strategy from "managing consultants" "auditors" and
"boutique consultants". All of which were announced as opportunities, all of
which were simply shakedowns and all of which are conducted in the medium of
powerpoint slides.

Until a powerpoint slide is not interpreted as a signifier of understanding
corporates and corporate life will decline.

My only hope at this point is the punchline of the red queen story. Peacocks
are great, right up until they meet a fox.

~~~
hammock
> All of which were announced as opportunities, all of which were simply
> shakedowns

Shakedowns by the consulting firms? Can you expand bc isn't it the CEO or
other exec who hire these guys in the first place

~~~
michaelt
At least in the UK, publicly traded companies must have their accounts
independently audited. But they're also allowed to hire those independent
auditors to provide consulting services.

This presents a pretty big conflict of interests - a company making £££ in
consulting fees isn't going to want to sour the business relationship by being
a hardass during the audit.

Essentially every time there's a major fraud or accounting scandal, it'll turn
out the auditors were also retained as consultants.

~~~
hammock
So the consulting firms are the ones being shaken down? Or what? I don't see
how that's a "shakedown" for the company as if they are in compliance there's
no need for them to pay for the "consulting shakedown" for better treatment.
Unless you are talking at a systemic level where, in order to compete,
companies HAVE to operate out-of-compliance and use these consulting
arrangements in order to prevent being exposed.

~~~
elefanten
I think op just meant that they do bad work for exorbitant prices. And gp
showed some of the pressures that can drive firms to buy optional services
from consulting firms: desire to maintain a "good relationship" or possibly
just discounting and bundling.

Also, the big consulting firms are generally known for aggressive upselling.
It's often a core part of their business model. Once you've got em on the
hook...

So, TLDR: Not shakedown as in extortion, shakedown as in bad service for a bad
price.

~~~
sgt101
Yes - this.

------
yuhong
I have disliked the “Online Forums” approval requirement in Whole Foods
Business Code of Conduct for a while now.

