Vanity In The Life Of Executives

Written by Subhash Agrawal | Updated: Aug 14 2003, 05:30am hrs
During the 1990s, the most frequent defence of skyrocketing CEO salaries, which incidentally made everyone else in the company look really dumb or obsolete, offered was market forces. This view had a certain elan and ring of common sense. It perhaps started with Sherwin Rosen, author of the 1981 essay The Economics of Superstars followed by other articles that essentially opined that top execs are worth every nickel. But a new study by the Harvard Business School discloses that in most cases of CEO selection, primarily but not exclusively in America, eminently qualified but lesser-known candidates are routinely overlooked, largely because Wall Street prefers celebrity types. The shortage of CEO talent is a myth, says Jeffrey Sonnenfeld, a professor at the Yale School of Management.

Not only is the market for senior executives based on artificial scarcity, there is also the attendant problem of not knowing who actually won, lost or simply played to par. In sports for instance, from where metaphors are constantly transferred to the business world, there is that absolute certainty of events. We know when Beckham scores a goal, Phillippousis serves an ace and when Schumacher crosses the finish line. In business, however, it is nearly impossible to assess success, much less attribute it to a single individual.

Business organisations depend on a host of external factors, the contribution of thousands of people, and a fair measure of luck. In fact, a number of recent studies suggest that a companys performance depends far more on the industry it is in and on general economic conditions rather than on who is in charge.

Percy Barnevik of ABB is the perfect example. For two decades he was lionised as the perfect global manager credited with a successful merger, doubling the combined business and a 20 per cent yearly rise in share value. That was then. In the last two years, ABB shares have collapsed 80 per cent, debt has climbed to unsustainable levels and employees are leaving in droves. Why Because during the Barnevik years, ABB borrowed from all over to fund acquisitions which are now considered dubious if not scandalous, and because it focussed too little on new products. Barnevik has gone from near-hero status to being viewed as a destroyer of ABB.

There are many others like him. Mostly, honourable men with good intentions and who started out well, but were done in by exaggerated public adulation and their own subsequent sense of infallibility. Revolutionary, Visionary, Unrelenting, Admired, Superachievers...these are just a few epithets used in modern literature, if not by the corporate world itself, to describe CEOs. In this dreamscape, executives are always pushing the frontiers, the people who matter, the movers and shakers. One amazing thing about the Enron fiasco was how the company bred a culture of speaking big all the time. At one conference during its heydays, a senior Enron executive spoke about how Five years from now we will have revolutionised the energy market. In fact, the real story of the last two decades is not how all these scams unfolded but how society allowed this messianic drivel to go uncontested. With all this love and applause, it may be a small miracle that more corporate types did not get seduced into starting their own new religion.

In fact, by the law of averages, there ought to be enough talent going around on this planet. But why they fail is because they lack the ability to get along with or inspire others. Which is leadership, which we all agree is in short supply. But what is really rare is decency and humility, two simple traits that might have insured us against the Enrons of the world.

Which brings me to the topic of this column. Actually I have borrowed it from a nice article sent to me by the Bertelsmann Foundation in Germany, a private sector think-thank. Written by a senior German CEO, it talks about how, usually, it is character flaws and not professional incompetence that causes companies and executives to fail. Vanity is an innate human trait, the report says, but excessive vanity can be destructive. A useful lesson, especially in our country where ego and hype are perhaps our most common failings.

The author is an analyst of Indian political and business trends and the editor of India Focus, a political risk report for international investors