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About CEOs – Anti Darwinian Metaphor – Survival of the Unfittest

The following is a metaphor I use. While it is slightly facetious, there is much truth to it. But keep in mind, there are many CEOs, even some I have sparred with, that are exceptions. Often, their companies are undervalued not necessarily because of them but because there are restructuring opportunities that their boards stand in the way of. CEOs that I have interacted with like Dick Parsons from Time Warner, Jim Kinnear from Texaco, David Roderick from U.S. Steel, Bob Rossiter from Lear, and Bill Fatt from Fairmont among others … do not fit the following metaphor. But unfortunately, there are too many CEOs in this country that the following does pertain to.

Anti Darwinian Metaphor

The way CEOs become CEOs in America is a travesty. This is one of our major problems. I use the anti - Darwinian metaphor. The survival of the unfittest.

If you remember if you were in college the fraternity president was always there for you. When you had nothing to do or when you were a little depressed. Feeling down. You go to the club and the fraternity president would always be there. You wondered when he had time to study which he probably didn’t do very much of in school. He was there to sympathize with you if your girlfriend didn’t show up or didn’t call you back and you obviously sort of liked the guy because the fraternity president was usually a likeable guy.

When the elections came up you would always vote for him. He had a couple qualities - the fraternity president. Politically, he was a survivor and he never made many waves. He did not promote controversy. Therefore when he went out into corporate America he was able to move up the ladder fairly quickly. Remember he survived, he didn’t make waves, and he wasn’t a threat. He kept moving up and up.

Eventually he becomes the assistant to the CEO. The CEO had the same qualities. He’s a survivor. He’d never employ anyone underneath him who might be a threat. The boards like these guys… this type of CEO. The boards generally don’t own any stock (another problem with our system). The boards don’t really care to hold CEOs accountable. Remember it’s a symbiotic relationship. These guys pay the boards very well – they give the boards perks. The boards don’t care to hold them accountable because that might endanger the perks they love so much.

When the CEO retires the assistant becomes the CEO. And remember what I told you. He’s a survivor. He would never have anyone underneath him as his assistant that’s brighter than he is because that might constitute a threat. So therefore, with many exceptions, we have CEOs becoming dumber and dumber and dumber. We can all see where this is going. It would almost be funny if it wasn’t such a threat to our ability to compete and to our economy in general.

Comments

Unfortunately, I think these comments could just as easily apply to the people that we have in Washington. How do we ask our government to fix what is wrong with corporate america when those people operate under the same set of principles.



It seems as though all the low-level people in an organization are the most educated about the business, and most driven, yet they never reach the top because of fearful executives and absurd politics. Such a travesty. The ability to "climb up from your bootstraps" is what made America so great, it's too bad modern day corporations and silver spooners don't embrace this. As I recall from the 60 minutes interview, Mr. Ichan happend to be one of the bootstrappers, which is why this post is so meaningful.



Awesome, Mr. Icahn. In B-School, I had a prof. that was an I-Banker, and all he kept talking about was how great the average CEO he worked with was. And how they were all smart, and ethical, and wonderful. And all our case studies were Enron, and HealthSouth, and MCI-Worldcom, and Adelphia, etc. I couldn't ever place whether my prof. was intentionally disingenuous with our class or simply unbelievably naive/obtuse. Now, I think he was very anti-Darwinian as well. He had to have had genius, likeable clients, right, because he himself was a likeable genius as well. What's the old saying? A doctor who treats himself has a fool for a client...and a banker who buys his own brilliance because his clients are brilliant is selling himself the snake oil...




Carl Icahn is right on the money with this post. The future of corporate America is bleak if we continue down this dangerous path. We need more people who think like you Mr. Icahn.




Isn't it absurd that investors are putting money into issues to raise capital by banks/investment banks that have only proved they are experts at losing money. (new topic for you)



Carl,

I think your characterization of most CEO's is most correct, but your nomenclature of "survivor" isn't. For me, survivor is badge worn by those who have fought against adversity, not for those that passively but progressively worked up the ladder.

One fundamental critique that your comments point to, but don't explicitly state, is that there is ideological homogeneity in the upper-echelons of most corporations. As such, there is probably little argument, debate, and conversation -- this is clearly the silent killer or force field to improvement in organizations.

I'm quite young in my career -- having worked at Toyota, Amazon.com, eBay, and have done some consulting in the Operations, Supply Chain, Logistics, and Fulfillment space. But, I can conclude -- without equivocation -- that if more companies emulated Toyota, then that would be a good thing. Toyota's culture is quite amazing, empowering, and the Toyota Production System (Lean Manufacturing) and its close sister, Six Sigma, are great strategic activities that more and more companies, I believe, need to adopt. Why? Because adopting the philosophy and tools and the worldview of Lean Manufacturing and Six Sigma are the seeds required to create a culture of improvement throughout the company -- benefiting employees, the community, and shareholders.

Great stuff, Carl.



I believe you are referring to the Peter Principle. (A person will rise to the their highest level of incompetance..)however, the anti-Darwinian de-evolution metaphor is priceless.

Reading this entry brought back some vivid and painful memories.

Learning from everyone elses' mistakes.....I have by good fortune been able to surround myself with people that are all smarter than I am and those people have in turn brought their smart friends as well because of the atmosphere. Every business effort is a team effort, it's too bad most corporate leaders do not understand the concept of 'servant leadership'.

Perhaps you may enjoy 'The Peter Pyramid' as well.

Best, DomainDiva



Wonderful post and voicing what many of us have felt for a long time. Business is no longer about taking risks and achieving amazing advances, but about maintaining a status quo and keeping the shareholders happy. Mediocrity is rewarded and new ideas are penalised.

A classic example (and one close to my heart) is how big business refuses to adjust to the internet age. It is easier and more in keeping with the current order to try and force people to continue with the current business model rather than follow a consumer trend and find new ways of developing profit. Hence the music industry taking ordinary people to court for an activity that will only ever increase, not decrease. Hence the number of businesses still approaching marketing as a one way conversation instead of adopting the interactive world brought on by the internet.

The future of business needs thinkers and people willing to try new things. I think we're in for a rocky transition period.



While as a nation we are no longer the "first" at anything, maybe it would be wise for Carl to be the first to get these candidates of "firsts" (running for office) to address this issue.
Carl couldn't have been more accurate about the "big boys network" and how it has and will continue to have a dangerous effect on our performance.



Icahn for President.



Having long followed and emulated the careers of Louis E. Wolfson (50's-60's) and Michael Milken only to see them "rock the boat" of corporate America so violently that they had to be destroyed. Carl, I watch your moves closely and have great admiration for them---even back them financially at times--but please, I ask you to stay clean in your dealings for you are being watched and scrutinized as few others--be careful--the "system" plays "hardball" too.



Here's an idea. Put together a set of recommended rules that companies should adopt: like absence of poison pills, stock-ownership for directors, and so on. Then, get someone to rate the governance of the top 500 companies according to their "Icahn Governance Score".

Perhaps it can be done in concert with other like-minded business leaders. Create the awareness among mutual funds and pension funds, asking them to look for these factors when they invest.

I'm imagining press-releases: "Company X drops from 5-stars to 4-stars" and "Company Y is in top ten for third year in the running"



But how can this problem with upper management be changed if modern corporations have a bureaucratic structure? A bureaucratic structure inherently implies that to get to the top, one is almost required to be political and often conflict adverse. Clearly, the strengths of a large, productive organization (division of labor, hierarchy, linearity) are also its long-term weaknesses. To change the system of promotion would require a complete transformation of the sociological systems that underpin our society.



I've seen this time and time again, Nice guys who couldn't figure out how to use the Coke machine in the break room, that end up running the company, and people who have the courage and conviction to question management being forced out because the "aren't team players", or intimidate those they work for.



There is nothing anti-Darwinian about the process you describe. Darwin's theory is quite robust and has proven to explain a vast array of natural phenomenon that might at first appear to contradict 'survival of the fittest'.

The dynamic behind contemporary American CEO succession illustrates what evolutionary biologists would describe as a parasitic relationship. As is the case in nature, parasites can so insinuate themselves in a host organism that their combined biology is subverted for the primary benefit of the parasite. Likewise, CEOs and their friendly boards often maintain their own survival by living off the corporation. Such relationships are perfectly consistent with, and in fact can be strengthened by, the benefits of Darwinism.

To immunize the corporate ecosystem from parasitic disease, the structure and function of the various parties to corporate governance-- shareholders, boards, management, and regulators-- must adapt to the current environment of increased competition and evolve a more symbiotic relationship.

All in keeping with the irrefutable natural laws of evolution. Adapt or die...



Carl,
Great Blog! Thanks!

Regarding mediocre CEOs, I believe the time has also come to tap into the global talent pool for new CEOs [and also Directors].

This will help inject new blood, new ideas and global vision into Board rooms.

Most importantly, it will also help break up the ossified good ole boy networks that are running some of America's finest companies into the ground.

Good luck.
Best wishes,
Nalin Meegama



Given enough time, CEOs of the type that you describe create a top-down society of incapable management in which all managers are long-term survivors or, better, "hangers on" (imagine a fraternity of perpetual Sophomores) and few managers know or care how to practice the expertise and experience that their titles confer upon them.



Wonderful post that needed to be said.

Before becoming a serial entrepreneur and building my own companies, I worked for a large computer company that is now extinct. I used to think of their elaborate matrix management structure as a thousand and one ways to pass every buck. Over and over I saw that the managers who moved up the ranks were the ones who never made a decision that would leave them vulnerable. Which meant that the safest strategy was to never make a decision.

So many times in my career have I seen CEOs survive because they do the safe expedient nearsighted choice always, even when that choice leads to an eventual decline of the company. Certainly there are exceptions, leaders who for whatever reason have established themselves as being far beyond the norm, but these are rarely the incompetent silky smooth managers who rise by offending least and watching their own backside first.



There isn't one critical response on here. Either this is the corporate equivalent of the Allegory of the Cave (to draw on your philosophy background), wherein you've enlightened us to the true nature of the CEO, or all these posters should be considered for the next in line at Icahn Enterprises...



This problem is not one of american corporates alone indeed it runs through corporates everywhere as well as government. In essence it is the progression from an entrepreneur who forms a business takes it to the growth phase and then is usually phased out as the money men move in . It explains the decline and dissappearance of great visionry companies over time



Let us remember Ayn Rand's The Fountainhead. The dichotomy that existed between Peter Keating & Howard Roark's path's clearly exemplifies the nature of self-preservation vs. vision & decision. Peter Keating a homogenized young man; a man of platitudes fit for the corporate world. Keating was generally well liked & excepted (though not a man of action or vision); he ascended rapidly while never truly making a decision. Young Howard Roark a man of vision was generally viewed as a genius but he did not compromise his vision or his personal integrity for anyone, he did not placate or politic. Roark made decisions, decisions by nature are decisive & force people to take sides, thus not everyone can like you if you make decisions. The moral of this story is those individuals of integrity & vision unwilling to compromise to gain favor generally do not survive.



The culture of nice........what tragic times we live in. It is more important to be nice than honest; more important to be nice than have intergity; more important to be nice than smart; more important to be nice than hard working; more important to be nice than accountable. The paradox is that all these nice people have no moral compass and live by the creedo that anything is okay until you get caught. Mr.Ichan, you have hit the nail on the head......



Great post, i remember you giving a similar lecture at Yale.

When you try to change company boards, you must remove those "survivor" CEOs and replace them with real managers. Where do you find GOOD managers to replace them with? What qualities do you look for?



Great article, is there a scientific study of the "anti-Darwin" nature of bureaucracies and CEO's? It's amazing that this issue isn't more widely analyzed. From the wikipedia entry on "bureaucracy" it appears that only the sociologists Max Weber and Robert Michaels have analyzed this topic in some detail, but both lived almost 100 years ago.



This is a great explanation/confirmation of something we have all seemed to witness over time. It sure presents a threat to the organization but I am not sure it presents a threat to the economy in general.

Here is my rationale: In a mature economy (like ours) new organizations are being created at a steady pace. Newer organizations will be driven by passion and willingness to generate and execute new ideas. Old organizations that have created "survivors" in the top ranks of the organizations will soon die leaving room for new players i.e. no organization will survive endlessly. This of course like all theories will have its exceptions (GE etc. ) It may create some short term impacts to the economy every time a giant will fall.

On the flip side, if the government starts saving organizations that have poor management by bailing them out every time the problem will transcend itself to the economy.



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