Some are better at allocating the pie than others
I am not personally a fan of most "How CEOs Succeed" books because: a) I'm not one and; b) most are pretentious self-serving ghost written cookie cutter full of tired clichés. However, to do CEO.CA justice, I thought it would be worthwhile to sing the praises of at least one "How CEOs Succeed" offering - The Outsiders: Eight Unconventional CEOs and Their Radically Different Blueprint for Success. In today's troll-friendly environment, it is very difficult to find a book that garners an average 5-star rating on over 100 reviews; this book successfully achieves that milestone.
In The Outsiders (not to be confused), author William Thorndike lays out the premise that many of Wall Street's most successful CEOs outperformed their peers not on the basis of operational excellence or personal charisma but, rather, through skillful allocation of capital. Unsurprisingly, capital allocator extraordinaire and all around good guy Warren Buffet makes the list. The seven other CEOs come from varying backgrounds and industries:
- Katherine Graham, The Washington Post Company
- Tom Murphy, Capital City Broadcasting
- Henry Singleton, Teledyne
- John Malone, TCI
- Bill Stiritz, Ralston Purina
- Dick Smith, General Cinema
- Bill Anders, General Dynamic
Thorndike finds commonality amongst all of these CEOs: 1) they ran decentralized operations, giving operational authority to their lieutenants; 2) they were all furiously independent; 3) most were outsiders to the businesses they ended up overseeing; 4) they were foxes (multidiplinary thinkers), not hedgehogs (narrow specialists); 5) they had minimal management experience; 6) they played the long game; and 7) they were otherworldly at capital allocation.
So how did Thorndike specifically classify capital allocation excellence? As a public CEO, the main avenues to allocate capital are through: 1) acquisitions; 2) investment in current operations; 3) dividend payouts; 4) stock repurchases and 5) debt reduction. According to Thorndike, the eight CEOs wielded each weapon carefully to maximize value. All of the CEOs profiled disdained dividends and judiciously repurchased stock whenever they were trading at a discount to the market. The use of debt was very strategic to shield cash flow from the tax man. Patience was definitely a virtue, as acquisitions were made periodically and with huge "all-in" bets.
Thorndike sprinkles the book with many pertinent examples from each CEO's respective career. From the investor perspective, The Outsiders provides a nice checklist for identifying CEOs with the temperament and capital allocating acumen to deliver long-term shareholder value.
Who doesn't want a piece of that pie?