CEOs get paid too much, right?
We hear it a lot. And it is staggering to look at some of the packages we see.
But what is a CEO really worth?
We got some good evidence just recently. Wall Street, which believes it is efficient in pricing the market, gave us a real clue on the value of leadership.
This week when Michael’s Companies named a new CEO the price of the stock went up 32%. Their market capitalization (the value of all the stock outstanding) went from about $910 million to $1.21 Billion according to Macrotrends in a single day.
That means that the market thinks that the leadership of the new CEO will be worth a lot to Michael’s bottomline.
Is it so? What does this mean to our companies in the private sector?
Here’s 5 lessons and some ideas on what to do now.
Lesson 1: Leadership Matters A Lot
Leadership does have a big impact on companies. I used to work a lot with large publicly traded companies early in my career. Now most of my work is with privately held businesses which are family owned or held by multiple investors as a partnership.
And I’ve found in the privately held businesses leadership may be more important than in public companies. In public companies there is almost always a functioning board of directors that is watching over the CEO. This means that, usually, there are smart people watching what the CEO is doine.
In the private sector good boards are rare. Some of my clients have them but that’s the exception. Most boards acts as rubber stamps for the CEO or as an attempted formality for liability protection (see my piece on Asset Protection 101).
And in the private sector I’ve seen the destiny of companies be wildly affected by leadership. Sometimes it’s a generational change or the removal of a leader. Regardless of why leadership changes happen we often see companies fail, grow or stagnate under different leadership.
Lesson 2: It’s Hard To Guess How A CEO Will Do
While we know a CEO can move the needle it’s hard to guess how they will move that needle.
In 1987 when Paul O’Neill took over Alcoa he turned his focus to worker safety. And many investors dumped the stock. But it was a huge mistake. Alcoa did improve workplace safety and their stock had an amazing run under O’Neill’s tenure.
The value of Alcoa went up $27 Billion in his 23 years there.
Other CEOs have done poorly. We recently talked about how poorly the Boeing CEO managed the company in this article.
Good or bad, and especially when there is not a strong board present, the CEO can make or break the future of the company.
Lesson 3: Good Leadership Is Valuable
Both Michaels and Alcoa show us how much just the expectations of a CEO’s performance can impact a company’s value.
Of course the real value of leadership is in the long-run. The culture that O’Neill changed at Alcoa. The expected improvements at Michael’s. That’s where the money is.
I see the same thing in the private companies I advise in consulting practice. Strong leadership keeps the company on track. Weak, or misguided, leadership can lead to a company going out of business.
Lesson 4: There Is Competition For Good Leadership
Because of the extreme value of the leadership – $300 Million in one day in Michael’s case – people want good leaders. And there is a market for it.
In the public company area we see leaders being traded like star football and baseball players. The information is much harder to come by in private companies but the principles are the same: you need to find value and get into the right team at the right time.
Running our businesses we need to be aware of this competition and plan accordingly. How can we compete? How can we create incentives to keep the right people? These are the questions we need to ask ourselves. (NOTE: Write me if you are interested in this and I might include this in a future article.)
Lesson 5: In The Private Sector We Need To Look Beyond Today’s Leadership
Because the private sector doesn’t have the developed market for leadership that the public companies have private companies need to have a plan. That means looking beyond today and having plans for continuity and growth.
Generally this is going to mean that leadership needs to be broadened – probably beyond what is comfortable – to include more people within your organization. It also means getting the information to more people.
For most private companies a real, functioning board, is often a key piece. Beyond that is talking to today’s leaders – and those envisioned for tomorrow – to find out what their plans are. Then making the company’s plans, and the leader’s plans, fit together.
Get your eye on the future and make a plan. If you haven’t done it before it makes sense to bring in some advisors to help you get it right.
What To Do Now
The time to get started is now. Think about the future and what your leadership might look like. Think about alternate leaders in case things change.
Embrace the extreme value of leadership and think to your future.
Those that depend on you will thank you for it.
NOTE: This article is a piece develop a small portion of the content of the book tentatively called The Journey: Finding Your Place From Entrepreneur to CEO being co-authored by The Our Shawn McBride and Ann Gatty. If you want updates on the book including the possibility of joining our release team or getting one of the first copies please join our mailing list here.
DISCLAIMER: This article talks about legal issues. I am a lawyer licensed in multiple US jurisdictions, but I am not your lawyer unless we have signed an engagement agreement. Please view this material as educational and consult counsel you have retained for advice on your specific facts and circumstances. Do not rely on these general statements as legal advice.
By: The Our Shawn McBride, is the business nerd and long-time business attorney that focuses on changes of ownership in businesses. He works with business owners that know their business is about more than themselves to get ready for their future within the future of business through keynotes, training and personalized solutions. In furtherance of this he hosts The Future Done Right(TM) Show where he collects, digests and gives lessons and insights on The Future of Business. If you want regular content on the future of business subscribe to get new blog posts from us here.
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The Our Shawn is based in DeLand, Florida (between Orlando, Florida and Daytona Beach, Florida) and Dallas, Texas where he keeps offices. You can also find Shawn on webinars or traveling nationally or internationally for speaking engagements.
Check me out at: www.planningdoneright.com
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