Tuesday, April 8, 2014

The Outsiders: The One Thing CEOs Need To Do Well

From time to time I've sat on endowment committees with truly smart investors.  I don't pretend to be one of those myself, but quarter after quarter I watched with them as the money managers came and went, the stocks and bonds went up and down, the markets rose and fell, the pundits huffed and puffed--and I listened really hard to what these investors inevitably and consistently said:  Most of the value in a portfolio is created in the allocation of assets.  In other words, the very first thing we did as an endowment committee was to set a risk profile and chose our asset classes.  That turned out to be the single thing that drove the most value long term.

You'd have thought it would have dawned on me that this powerful idea applied to operating businesses as well--the GEs, GMs, and Apples of the world--but no, sometimes it takes a sledgehammer.  And that's what I got hit with last weekend when I read William N. Thorndike, Jr.'s terrific 2012 book, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success.  (Thanks to my friend, Henry Ames, for gifting this great read to me.)

Thorndike opens with a simple question: "Who's the greatest CEO of the last fifty years?"  Some people might answer (incorrectly) Steve Jobs; others (like me, who are old enough to be a little confused on his dates: Alfred Sloan).  But the consensus answer is undoubtedly Jack Welch.  Welch ran GE for 20 years, achieved an annual compound return of 20.9%, and outperformed the S&P by 3.3 times.  Welch also played at business like Lawrence Taylor played linebacker (ok, for those of you who picked Steve Jobs: Ray Lewis) with a kind of high-energy, smashmouth style that got him magazine covers and lots and lots of press.  Welch was a hard-charging, gifted CEO, but compared to a guy named Henry Singleton, Thorndike says, Welch "wasn't even in the same zip code."

Wednesday, April 2, 2014

The Education of a (Diminishing) Baby Boomer

One of my favorite books is The Education of Henry Adams, published at Adams’ death in 1918 and winner of the Pulitzer Prize.  Henry was born in 1838 and witnessed a steady parade of innovation during his lifetime, from the railroad and telegraph emerging around the time of his birth to the electrical grid, telephone and automobile so pervasive at his death.  Adams grew up in a country half-slave and about to be torn asunder but died in one that was a unified, world power.  He saw factories in old age beyond anything he could have imagined as a child, and a nation of disconnected farmers turned into a mass market of connected cities.  These changes were so dramatic, Henry believed, “the old universe was thrown into the ash-heap” and something brand new had been created over the course of his lifetime.  “At the rate of progress since 1800,” Adams concluded, “every American who lived into the year 2000 would know how to control unlimited power.” 

We know better, of course, but were Adams to return and play with a smartphone, surf the Web or visit an automated factory, he might very well think we had arrived.

For me to have the same 79-year time horizon as Henry Adams, it would need to be 2036.  For me to have the same perspective I would need another 20 or 30 points of IQ, and it wouldn’t hurt to have grown up the grandson and great-grandson of Presidents.  Or, as Henry was, be a brilliant writer and historian.  Still, on the off-chance I don’t make it to 2036, I thought it would be worth surveying my own ash heap—or more properly now, my Municipal Solid Waste Landfill-- to see in 2014 what’s been tossed of my old world, and at the same time, what’s been created anew.