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At The Money: What the Best CEOs Actually Do · Masters in Business

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  Speaker 1: Bloomberg Audio Studios. Podcasts.
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  Speaker 2: Radio.
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  Speaker 1: News.
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  Speaker 3: Yeah!
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  Speaker 2: Meet the new boss Same as the.
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  Speaker 3: Old boss What do CEOs actually do? What are the
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  Speaker 3: most important parts of their job? And how much do
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  Speaker 3: they matter to their stock's performance? To help us unpack
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  Speaker 3: all of this and what it might mean for your portfolio,
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  Speaker 3: let's bring in Professor Nitin Noria. He's former dean of
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  Speaker 3: the Harvard Business School, where he's still a professor. He's
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  Speaker 3: also executive chairman of Thrive Capital, Joshua Kushner's venture firm.
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  Speaker 3: His new book is out. It's the CEO, Role, Reality,
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  Speaker 3: and Responsibility. So let's start basically. I always assume the
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  Speaker 3: most important aspect of a CEO was allocating the firm's capital.
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  Speaker 3: Turns out to be a little more complicated than that.
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  Speaker 2: Certainly, allocating capital is one very important aspect of the
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  Speaker 2: CEO's job. But beyond that, CEOs are responsible for all
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  Speaker 2: of the decisions that companies make. And while they cannot
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  Speaker 2: make but a very small number of those decisions, their
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  Speaker 2: responsibility is to create the conditions so that the decisions
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  Speaker 2: that are being made by everyone in the organization are
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  Speaker 2: decisions that they can endorse, feel good about, and move
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  Speaker 2: the company forward in a direction that is aligned with
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  Speaker 2: the priorities and goals that they have.
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  Speaker 3: Yeah, there's a quote from the book that resonated with me.
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  Speaker 3: CEOs matter not because they control everything, but because they
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  Speaker 3: shape everything that matters. That really seems to sum up
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  Speaker 3: a lot of that, doesn't it? Yes.
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  Speaker 2: And what are the things that are part of that
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  Speaker 2: shaping that CEOs can do? Resource allocation is one. Strategy
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  Speaker 2: is another. Culture is a deeply important thing. Sometimes CEOs
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  Speaker 2: also have to create the processes by which things get
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  Speaker 2: executed in firms and Here, CEOs have to create the
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  Speaker 2: conditions for execution. What are the standards to which people execute?
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  Speaker 2: What happens when performance is missed? How do you go
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  Speaker 2: in and intervene? What does green, red, and yellow look
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  Speaker 2: like in any organization? So all of these create the
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  Speaker 2: architecture on which decisions get made. And that's the real
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  Speaker 2: job of the CEO is to create the architecture of
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  Speaker 2: these things that surround people and enable them to make
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  Speaker 2: good decisions.
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  Speaker 3: So as dean of the Harvard Business School, not only
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  Speaker 3: do you work with a lot of students, but you
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  Speaker 3: also help oversee the workshops that the business school puts on.
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  Speaker 3: And there's very specific, I forget what it's called, very
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  Speaker 3: specific set of skills that are taught at executive leadership
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  Speaker 3: classes that Harvard gives. Some of the data that came
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  Speaker 3: out of that was really shocking to So the people
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  Speaker 3: who participate in Harvard Business School workshops average about $ 17
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  Speaker 3: billion in revenue, have about 25 years of executive experience
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  Speaker 3: prior to becoming CEOs, and they describe the role as, quote,
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  Speaker 3: the steepest learning curve of my life. Why does prior
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  Speaker 3: leadership roles just not prepare people for what the CEO
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  Speaker 3: position is like?
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  Speaker 2: So these workshops that you described are New CEO workshops,
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  Speaker 2: we have people come to them in their first year
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  Speaker 2: of having been appointed CEO. As you note, they're all
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  Speaker 2: CEOs of very large companies. And these are very experienced leaders.
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  Speaker 2: You don't become a CEO of a Fortune 500 type
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  Speaker 2: company unless you've had plenty of leadership experience before. And
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  Speaker 2: yet to a person, they will describe the job as
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  Speaker 2: a surprise, as something that they suddenly did not realize
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  Speaker 2: all that it would entail. Simple things from, oh, I
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  Speaker 2: used to serve in board meetings. And when I was
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  Speaker 2: presenting at board meetings, it's one thing. But now I
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  Speaker 2: have this board that I have to manage. I used
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  Speaker 2: to know how to manage one boss. This crazy group
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  Speaker 2: of 10 or 12 people is a very different kind
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  Speaker 2: of boss than I was. Every word that I now
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  Speaker 2: say gets magnified, amplified. It's put under a microscope in
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  Speaker 2: a way that I never imagined. I used to be
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  Speaker 2: able to speak my mind a little bit freely. I
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  Speaker 2: can't do that anymore. I thought when I became CEO,
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  Speaker 2: I would finally have access to all the information in
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  Speaker 2: the world. Then people realized, actually, information comes to me packaged,
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  Speaker 2: presented in a way that everybody has an agenda around.
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  Speaker 2: So actually getting to know the real truth is even
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  Speaker 2: harder than I imagined.
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  Speaker 1: These are just.
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  Speaker 2: Examples of the ways in which people feel surprised by
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  Speaker 2: the job. I could give you more, but it's an
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  Speaker 2: illustration of why people experience this as a gigantic surprise.
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  Speaker 2: You know, you suddenly have every constituency in the world
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  Speaker 2: wants a little bit of your time and you only
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  Speaker 2: have so much time to give anyone because as a CEO,
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  Speaker 2: that's your scarcest resource. So this is why I think people,
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  Speaker 2: despite being tremendously seasoned leaders, experience the CEO's job as
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  Speaker 2: a surprise and one of their steepest learning curves.
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  Speaker 3: So here's a data point I was genuinely surprised at.
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  Speaker 3: Individual CEOs account for about 15% of their company's performance,
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  Speaker 3: almost the same as completely switching industries. I'm curious how
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  Speaker 3: that number comes about. And I'm also curious, does that
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  Speaker 3: apply for the sort of rare CEOs, the Warren Buffetts,
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  Speaker 3: the Jamie Diamonds, the Steve Jobs? Can you say the
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  Speaker 3: same thing about those CEOs?
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  Speaker 2: So the data is essentially 20 years of data in
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  Speaker 2: which you look at all of company performance and you
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  Speaker 2: can look at it either in terms of total returns
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  Speaker 2: to shareholders, return on assets. It's almost indifferent what kinds
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  Speaker 2: of measures you use. And if you look at those
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  Speaker 2: 20 years and you just do the total variance in
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  Speaker 2: performance and you say what accounts for it, it turns
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  Speaker 2: out that, you know, every year in which we have
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  Speaker 2: interest rate movements, macro shocks and things like that affect
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  Speaker 2: all these companies uniformly, that accounts for about 5% of
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  Speaker 2: performance variation over actually a 20-year period. Then you see
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  Speaker 2: the industry in which a company is, how important is that?
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  Speaker 2: And that accounts for about 15% of the variance over
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  Speaker 2: a 20-year period. Then you see, you know, companies themselves
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  Speaker 2: have unique assets and unique positions. And so, as Warren
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  Speaker 2: Buffett used to say, you buy a great company and
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  Speaker 2: that great company can endure for long periods of time.
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  Speaker 2: It turns out that the, or if you end up
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  Speaker 2: with a very bad company, even a great CEO can't
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  Speaker 2: save it. So the company itself accounts for about 25%
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  Speaker 2: of the performance. And after you control all of that,
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  Speaker 2: there's about three CEOs on average over a 20-year period
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  Speaker 2: in these companies. They account for 15% of the performance.
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  Speaker 2: So better or worse, it's not the case that these
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  Speaker 2: are only for better. And that's a pretty large number, right?
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  Speaker 2: It means that any board that's appointing a new CEO
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  Speaker 2: is making a decision that could be as significant as
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  Speaker 2: changing the industry in which the CEO operates. Now, there'll
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  Speaker 2: be great CEOs, like Jamie, like as you said, people
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  Speaker 2: who lost 20 years, have astonishing crack records. They're part
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  Speaker 2: of the data. So they represent the upside of this.
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  Speaker 2: But there's also CEOs who get fired in three years,
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  Speaker 2: who do very poorly, who end up not doing very well.
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  Speaker 2: Meh CEOs who don't do much one way or the other,
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  Speaker 2: but that's part of the equation too.
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  Speaker 3: Really, really interesting. Here's a quote I really appreciated and enjoyed.
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  Speaker 3: The job is not to make all of the decisions,
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  Speaker 3: but to create the conditions for others to decide well.
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  Speaker 3: Unpack that. That's really a fascinating observation.
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  Speaker 2: So when you sit in a meeting as a CEO,
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  Speaker 2: all eyes are on you. People will say, what are
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  Speaker 2: the things that the CEO is really paying attention to?
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  Speaker 2: Did they just care about the quarterly results? Did they
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  Speaker 2: care about how the quarterly results were achieved? If I'm
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  Speaker 2: a person who delivers the results, but I act like
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  Speaker 2: a jerk, is that okay? If I'm a saint who
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  Speaker 2: ends up exemplifying all the values of the organization, but
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  Speaker 2: actually don't deliver results, do I still get a pass
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  Speaker 2: because I happen to be a culture carrier?
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  Speaker 1: I think how CEOs.
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  Speaker 2: Respond to all of these things is the is what
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  Speaker 2: sets the context for how decisions get made and how
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  Speaker 2: others read. What decisions will be important when the CEO intervenes,
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  Speaker 2: when they ask 10 questions versus when they end up
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  Speaker 2: having a very lighthearted conversation and it looks like, ah,
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  Speaker 2: you know, we know that the decision's been made in
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  Speaker 2: any case.
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  Speaker 1: Are decisions made in.
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  Speaker 2: The full context of the executive team or are decisions
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  Speaker 2: made in back rooms?
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  Speaker 1: These are all choices that CEOs.
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  Speaker 2: Have and it shapes in a profound way both the
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  Speaker 2: way decisions are made and the quality of decisions in
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  Speaker 2: any company.
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  Speaker 3: The book is chock full of just fascinating data points
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  Speaker 3: from your experience with the Harvard Business School workshops for
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  Speaker 3: new CEOs. Let me share my three favorites. And really,
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  Speaker 3: these were all the most surprising data points that I read.
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  Speaker 3: The first one, maybe this shouldn't be surprising because we
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  Speaker 3: all deal with this headache, Meetings account for 72%. of
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  Speaker 3: a CEO's total work time. That seems astonishing. Three quarters
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  Speaker 3: of their week is meetings.
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  Speaker 1: Yeah.
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  Speaker 2: In a very small way, I remember when I first
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  Speaker 2: became dean, which is not quite a CEO's job, but
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  Speaker 2: has characteristics of the CEO job. I often used to
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  Speaker 2: joke that These CEO workshops, little did I know, ended
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  Speaker 2: up being in some small way preparation for my time
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  Speaker 2: as dean. And what you suddenly see is your calendar
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  Speaker 2: has meeting upon meeting upon meeting upon meeting. There's one-on-one
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  Speaker 2: meetings with your leadership team. There's meetings in which you're
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  Speaker 2: reviewing performance. There's meeting with alumni, which is the equivalent
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  Speaker 2: of having meetings with customers or with investors. So CEOs
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  Speaker 2: have no choice but to get their work done face-to-face
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  Speaker 2: in a series of meetings. And so three-quarters of the
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  Speaker 2: time is spent in meetings, which is why The choice
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  Speaker 2: of meetings that you have, who is in it, how
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  Speaker 2: you conduct them. Some meetings are very task oriented. Some
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  Speaker 2: meetings are about relationship building. This is the CEO's life
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  Speaker 2: and they better do their meetings well.
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  Speaker 3: Really interesting. Here's another one. CEOs spend 36% of their
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  Speaker 3: time as CEOs reacting to unfolding events. I guess we
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  Speaker 3: shouldn't really be surprised at that, should we?
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  Speaker 2: Yeah, this one we shouldn't be surprised by, but yet
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  Speaker 2: most people think that the job is I set an agenda,
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  Speaker 2: I proactively do things.
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  Speaker 1: So the whole nature of the CEO's job, you know.
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  Speaker 2: My colleague, John Carter, from whom I learned everything about
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  Speaker 2: teaching leadership, used to say it's about having a vision,
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  Speaker 2: aligning people around the vision, and then motivating them to
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  Speaker 2: get things done, which forgets that the world comes at CEOs...
• 11:41
  Speaker 2: in ways that are unpredictable. We had COVID happen. I had,
• 11:45
  Speaker 2: during my time as dean, the marathon bombing. I had
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  Speaker 2: a student who suddenly died. When these things happen, they
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  Speaker 2: don't come announced, and you have to pay attention to them.
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  Speaker 2: You have to respond to them quickly, and they take
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  Speaker 2: up very large amounts of your time. So in some ways,
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  Speaker 2: we should not be surprised by this finding. And yet,
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  Speaker 2: when you first share it with people, the reaction is
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  Speaker 2: the same as you, Barry, which is, I didn't realize
• 12:09
  Speaker 2: it was such a large amount.
• 12:11
  Speaker 3: My father always used to say, man plans and God laughs.
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  Speaker 3: And there's a lot of truth.
• 12:16
  Speaker 1: I think it's wonderful your father was wise.
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  Speaker 3: Here's the third data point that, again, is stunning, but
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  Speaker 3: we shouldn't really be surprised at it. More than 60%
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  Speaker 3: of corporate mergers and acquisitions fail to deliver. That's a
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  Speaker 3: pretty beefy number, isn't it?
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  Speaker 2: Yeah. And this is a number that's been a number
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  Speaker 2: that hasn't changed for like 30 years. And you would
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  Speaker 2: think that given how commonly this number is known, we
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  Speaker 2: would get better. But there are two things that end
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  Speaker 2: up happening, I think, in most M & A situations
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  Speaker 2: that create the statistic. One is that it's hard to
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  Speaker 2: not fall into a bidding war. And because you've committed
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  Speaker 2: so much to it, The risk is that you overpay,
• 13:02
  Speaker 2: that in the end, there's the winner's curse. You want
• 13:04
  Speaker 2: to win desperately, and the winner's curse occurs again and
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  Speaker 2: again and again. And the second is that people tend
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  Speaker 2: to underestimate all that it will take to integrate the
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  Speaker 2: merger once it's done. I can't tell you the number
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  Speaker 2: of companies that I have been in which five years
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  Speaker 2: after the merger, people will still introduce themselves as, I
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  Speaker 2: am from the company that was the previous merger. They
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  Speaker 2: introduced themselves carrying the identity of the original company as
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  Speaker 2: opposed to of the merged company. And that is a
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  Speaker 2: tell sign that integration never really occurred.
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  Speaker 3: Huh, really, really interesting. There are some quotes from the
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  Speaker 3: book that I thought were really telling. And you've already
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  Speaker 3: talked a little bit about communication and focus, but this
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  Speaker 3: one jumped out at me. If the message doesn't travel intact,
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  Speaker 3: it doesn't matter how well I set it in the room.
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  Speaker 3: It has to keep its shape when I'm no longer there.
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  Speaker 3: We don't usually think about how do we communicate, not
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  Speaker 3: just to express something in the moment, but to make
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  Speaker 3: sure that when there's second and third effects, when there's
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  Speaker 3: copies of copies, the message, the telephone game doesn't somehow
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  Speaker 3: invert the message. Yeah.
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  Speaker 2: I think that this is, I did a study once
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  Speaker 2: in which I asked the CEOs, what are the five
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  Speaker 2: things that you hope everybody in your organization knows? And
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  Speaker 2: then with their permission, just like my time study, this
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  Speaker 2: I could only do with half a dozen people. I said,
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  Speaker 2: can I just randomly send out to 30 people in
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  Speaker 2: your organization, randomly chosen, what would they say are the
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  Speaker 2: five messages that the CEO most wanted to hear?
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  Speaker 1: Most CEOs were aghast by what came back. They were
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  Speaker 1: surprised by what people actually.
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  Speaker 2: Believed was not in any way aligned with what they
• 15:00
  Speaker 2: thought they had to say. And this is what led
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  Speaker 2: me to this quote, which is, you think that what
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  Speaker 2: you're saying is what people hear. People hear very, very
• 15:08
  Speaker 2: different things. So the goal, therefore, is the lessons are simple.
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  Speaker 2: Keep it simple. Say the same thing.
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  Speaker 1: Repeat yourself.
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  Speaker 2: Find compelling stories that cause your message to stick.
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  Speaker 1: And check, go out to the front lines.
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  Speaker 2: It's stunning to me that one of the most surprising
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  Speaker 2: things that I found in the CEO study was how
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  Speaker 2: little time CEOs spend with the front lines and with
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  Speaker 2: the customers. Because that's where you actually hear the truth.
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  Speaker 2: That's where you can tell whether your message is traveling
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  Speaker 2: in the ways that you intended. So I would say
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  Speaker 2: to every CEO, don't ask your head of communications whether
• 15:44
  Speaker 2: your message traveled. Go out to the front lines and
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  Speaker 2: to your customers, and then you'll find out how well
• 15:49
  Speaker 2: your message traveled.
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  Speaker 3: Michael Lewis once told me the book you write isn't
• 15:55
  Speaker 3: always the book people read, which is kind of astonishing.
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  Speaker 3: But I guess it's the same thing. People hear and
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  Speaker 3: perceive through a filter that's different than what perhaps you
• 16:05
  Speaker 3: were putting on the page. But since you mentioned how
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  Speaker 3: little time CEOs spend with the front lines and with customers,
• 16:14
  Speaker 3: explain what is corner office isolation?
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  Speaker 1: I think you end up.
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  Speaker 2: Everybody wants a piece of your time. They loudly clamor
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  Speaker 2: for your time. And as the old saying goes, the
• 16:31
  Speaker 2: squeaky wheel gets the grease. And it's easier for the
• 16:36
  Speaker 2: assistant and for the CEO in terms of efficiency of
• 16:39
  Speaker 2: their time to have the meetings occur in their own office,
• 16:42
  Speaker 2: as opposed to going out on the road. Like if
• 16:44
  Speaker 2: you had to go out and have your meetings, you'd
• 16:46
  Speaker 2: have to build in the travel time for every meeting.
• 16:48
  Speaker 2: And it's just more efficient So from a standpoint of efficiency,
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  Speaker 2: who asks for your time? CEOs have a real risk
• 16:56
  Speaker 2: of being isolated. It takes real discipline to go out
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  Speaker 2: and carve out the time to visit plants, to visit stores,
• 17:04
  Speaker 2: to go out to the front lines, to meet customers
• 17:07
  Speaker 2: in a setting that hasn't already been orchestrated, where you're
• 17:10
  Speaker 2: only meeting the best customers who've already been prepared by
• 17:12
  Speaker 2: your team. That takes real effort, and I think the
• 17:15
  Speaker 2: best CEOs do that.
• 17:17
  Speaker 3: You know, I have heard stories from various executives and
• 17:22
  Speaker 3: fund managers and others about CEOs who, when they first
• 17:26
  Speaker 3: get the job, do a six-month listening tour. They travel
• 17:30
  Speaker 3: to different plants. They speak to customers. They speak to mid-management.
• 17:36
  Speaker 3: They speak to frontlines people. It seems incredibly time-consuming. Is
• 17:42
  Speaker 3: that sort of approach really worth it to get them
• 17:45
  Speaker 3: out from their bubbles?
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  Speaker 1: Everyone should do that.
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  Speaker 2: And actually, my experience is that most CEOs do do
• 17:53
  Speaker 2: that in the first six months. But their job is
• 17:56
  Speaker 2: much longer than six months. The question is, are you
• 17:59
  Speaker 2: continuing to do that periodically? You don't have to do
• 18:03
  Speaker 2: it with the same intensity. But I think the best
• 18:06
  Speaker 2: CEOs recognize that the world is constantly changing. And just
• 18:09
  Speaker 2: because I had a pulse of the organization when I
• 18:12
  Speaker 2: first became CEO.
• 18:13
  Speaker 1: I can't lose that pulse of the organization.
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  Speaker 2: And so I need to have that as a habit,
• 18:17
  Speaker 2: which I continue to find ways of doing throughout my
• 18:20
  Speaker 2: time as a CEO.
• 18:21
  Speaker 3: So again, very related to the concept of communication. I
• 18:27
  Speaker 3: want to wrap up with this quote. When you tell
• 18:30
  Speaker 3: the truth in bad times, people believe you in good times.
• 18:35
  Speaker 3: How important is that sort of credibility and legitimacy for
• 18:40
  Speaker 3: a CEO to successfully perform their tasks.
• 18:44
  Speaker 2: So one of my favorite examples, also because he happened
• 18:48
  Speaker 2: to be a student in the first class I ever
• 18:51
  Speaker 2: taught at.
• 18:51
  Speaker 1: Our business school, is Larry Culp.
• 18:55
  Speaker 2: And I remember when he became CEO of GE and
• 18:58
  Speaker 2: everybody thought that the company was on its way to bankruptcy.
• 19:03
  Speaker 2: And his capacity to both tell the truth of what
• 19:07
  Speaker 2: was wrong at GE, but also to create hope at
• 19:09
  Speaker 2: the same time. And I think this is the magic
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  Speaker 2: of great CEOs, which is they don't deny the truth.
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  Speaker 2: They have people confront the reality, but then they also
• 19:16
  Speaker 2: give them the confidence that this is not a reality
• 19:20
  Speaker 2: that you should be afraid of. This is a reality
• 19:22
  Speaker 2: that we created and it's a reality that we can fix.
• 19:26
  Speaker 2: And I'm here to work alongside you to fix it.
• 19:29
  Speaker 1: And I think that.
• 19:30
  Speaker 2: That's what great CEOs do, which is they always confront
• 19:33
  Speaker 2: reality the organization with the reality. By the way, my
• 19:36
  Speaker 2: experience is that in most people in the organization already
• 19:39
  Speaker 2: understand that reality. Nobody has just shown them the mirror
• 19:43
  Speaker 2: in a way that they should see it. I think
• 19:45
  Speaker 2: good CEOs know how to do that, but then they
• 19:47
  Speaker 2: also don't leave you feeling afraid after reality. They find
• 19:51
  Speaker 2: a way to giving you confidence about what lies on
• 19:54
  Speaker 2: the other side.
• 19:55
  Speaker 3: Really interesting. Professor Nitin Nuria, author of the new book,
• 20:00
  Speaker 3: The CEO, The Role, Reality and Responsibility. Thank you so much, Professor.
• 20:06
  Speaker 3: I'm Barry Ritholtz. You're listening to Bloomberg's At The Money.