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'.
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.
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.
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.
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).
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.
>"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?
Where this might matter, hypothetically, is if you can separate one of the 3 from the other on an issue. If, for example, Larry did such a terrible job running the company that even Sergey believed he should be replaced, then an activist investor coalition together with Sergey's Class B shares could force a change in leadership. In such a situation, it's likely that GOOGL (class A, with voting privileges) would fetch a very hefty premium over GOOG (class C, no voting privileges), because an activist investor coalition would need to own nearly all the class A shares plus have the support of Sergey or Eric to effect change.
Can voting shares be sold on the open market the same as the non-voting shares? Wouldn't a company that opted for a two tier structure restrict the sale of voting shares as part of their corporate charter? I'm not sure of charter is the correct term here so please correct me if that's wrong.
Yes. They have voting control of Google.
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?
That's a real question. Google's proxy statement mentions management succession [1, p. 29] but doesn't say anything useful. It's not at all clear how Alphabet and Facebook will handle succession.
Ford Motor Company has a two-tier stock scheme, and has for over a century. The control stock is restricted so that it can't be sold outside the family. That's been in place for a century, and they're on the fourth generation of Fords owning Ford Motor. For most of the company's history, a Ford was the CEO of Ford Motor - Henry Ford I, Henry Ford II and William Clay Ford Jr ran the company. Currently, a non-family member is CEO, although a family member is head of global marketing.
Fine print is just deception wearing a tuxedo.
I don't understand you comment in voting shares being a "big difference." Everyone gets that dividend if its paid out regardless of whether its a class A holder or class B holder no?
I guess if that's the case, why have a board at all? Is it just for optics?
-- Ben Bernanke, Princeton University Commencement 2013
Princeton is the epitome of a capitalistic school. Very few students will become socialists. Having more Rockefellers and Carnegies (who have both given to the university) is not a bad thing for this world.
Please explain this. I know little about Princeton.
More need to come to this realization and abandon the idea of absolute meritocracy altogether instead of paying lip service with talk of "equality of opportunity".
>It is important in disputes that law treat us equally because it is necessary for the preservation of suppressing violence by forcing all competition into voluntary exchange. Otherwise the institution cannot provide the incentive to suppress our instincts and redirect our efforts.
>But the western illusion that those values necessary to create incentives for us as an individual economic unit can insulate us from our family, and clan, and the necessary operation of our reproductive evolutionary system is a postmodernist, socialist fiction that assumes economic and legal equality can be extended to genetic equality – contrary to all evidence and reason.
>The rawlsian veil of ignorance is a complex rhetorical device for the neurolinguistic programming of the masses precisely to confuse them into the illusion of biological equality and to divorce the individual from his ancestry so that his loyalties are to the state and rather than to his familial genetic heritage.
>The blank slate, likewise is a device for the same purpose. So are diversity and open immigration.
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.
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.
I'll add to that that finally the law of compound interest seems to have reached its limits, the same as Moore's law. Capitalism has been riding on its tails for the last 200 years or so, but IMHO we're in new territory right now where the good and steady returns are no-where to be found anymore.
And if one doesn't consider the returns good, what would be good, and was it actually better in the past?
Another way of looking at it is that this is exactly how the shareholders want the situation to appear, in that CEOs are working hard for them, their bosses, and they don't mind paying for that hard work with extra compensation, which I guess is the exact dynamics of the situation.
"an elite group of people whose progress is based on ability and talent rather than on class privilege or wealth."
However defining what constitutes "merit" has some issues:
The term "meritocracy" was originally intended as a negative concept.One of the primary concerns with meritocracy is the unclear definition of "merit" What is considered as meritorious can differ with opinions as on which qualities are considered the most worthy, raising the question of which "merit" is the highest—or, in other words, which standard is the "best" standard. As the supposed effectiveness of a meritocracy is based on the supposed competence of its officials, this standard of merit cannot be arbitrary and has to also reflect the competencies required for their roles.
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.
And their failure case is a golden parachute, not penury. Little bit different.
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.
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.
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.
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.
Yea, because they'll be struggling to put food on the table.
What an out of touch comment.
No one likes to fail or get fired. But most working class aren't afraid of getting fired because of failure-but because they need food/place to stay/healthcare/have to care for a family. Most CEOs in that level are far beyond that.
That doesn't mean "not rich".
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?
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.
I think you're quite right. CEOs need to balance being institutional-continuity leaders and forward-leaning renegades. Status quo isn't good for one set of reasons, neither is arbitrary change. I don't think there's much room for Steve Jobs' types unless they're well-beyond perfect, even so, the culture may suffer enormously for most stakeholders. The worst kind of CEO these days is the generic "steady-rock" Mike Pence-type who's thoughtful and generally does all the right business-theater handshakes, but doesn't either doesn't understand the market, how to hold business units accountable or doesn't have any timely ideas that will grow/adapt the business to ensure its dominance. Fortune 1000 CEOs need to manage massive organizational complexity and anticipate the future like a startup founder/investor to be effective.
Startups are not huge corporations with multiple silo'd organizations within. They're small and focused. Everyone is aware of the main goal.
As opposed to a major fortune 500 with tons of silo'd organizations and internal politics. It's just too difficult to manage. There's too many products, too many competing services, too many people who want their slice of the pie.
IT was a revolution for reducing transaction costs, but broke a lot of companies by bringing decisionmaking too high up in the organization. Decisions made by clerks in 1980 are being made by people two hops down from the CXO today.
Ronald Coase's Nobel-prize winning theory of the firm  posits that "people begin to organise their production in firms when the transaction cost of coordinating production through the market exchange, given imperfect information, is greater than within the firm." One could debate whether Wordpress, AWS and Google have made it easier to start a business than Gmail, Pipedrive and SAP have made it to run a big business.
This parallels U.S. presidental campaigns.
I posit all the time that large corporations are going away, in a long slide towards voluntary federations of sub-human corporations. (Fewer than one full time employee)
Maybe the effect you describe is the writing on the wall. The biggest corporations are becoming unrunnable in any sustainable way. No forward motion, just death throws as previously booked resources are used up.
Over time, this affliction will come to smaller and smaller corporations until just human persons and AIs remain.
"Large corporations" will remain only to the extent CEOs can turn them into voluntary federations. Zuck buying companies and letting them run independently isn't really a corporation in the traditional sense. It has the whiff of a voluntary federation.
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
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.
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.
The consultants are selling machines, the long term outcome of their advice is not relevant. They seek to create evidence of interest and adoption of the latest trend. A great example would be organizational health vs rigorous performance management cultures. The outcomes of both are contestable and contested, they are polar opposites in terms of philosophy and culture, and yet both are touted and sold by the same people.
For the consultant what matters is the booking now, the political reception preparing the way for next time in this company, and the reference and referral opportunities to generate more business. The value of what they sell and the impact of it on business success just doesn't matter - they're out here!
Your entire post reeks of the unintelligible consultants that you deride.
I'm tempted to read into it some kind of triple-entendre at their expense ? Or something ?