Alan Murray's essay on the fall of Bob Nardelli in the Wall Street Journal last week got a lot of attention. Murray pointed out that under Nardelli's tenure, Home Depot had doubled sales and more than doubled earnings but this wasn't enough to save his job. Nardelli, Murray argued, hadn't adapted to the new requirements for chief executives of public companies.
What Mr. Nardelli missed . . . is that in the post-Enron world, CEOs have been forced to respond to a widening array of shareholder advocates, hedge funds, private-equity deal makers, legislators, regulators, attorneys general, nongovernmental organizations and countless others who want a say in how public companies manage their affairs. Today’s CEO, in effect, has to play the role of a politician, answering to varied constituents. And it’s in that role that Mr. Nardelli failed most spectacularly.
There's little doubt that this is at least partly correct. The role of a CEOs have become more complex, and the proponents of shareholder democracy and the latest trends in corporate governance want to make it even more so. The question we have, however, is whether or not this is a good idea. The more focused CEOs are on politics, the less they can focus on things like making money. This will no doubt create more and more opportunities for private equity firms taking companies and management teams that don't want to play politics out of the public markets. But it's far from clear that this is the best way to run our public companies.
Over on the Organizations and Markets blog, Peter Klein points out an even more fundamental concern. The very nature of the type of person likely to succeed under the new model of corporate governance is likely to change. Quoting from Ludwig Von Mises 1944 book Bureacracy, Klein notes:
In such an environment the entrepreneur must resort to two means: diplomacy and bribery. He must use these methods not only with regard to the ruling party, but no less with regard to the outlawed and persecuted opposition groups which one day may seize the reins. It is a dangerous kind of double-dealing; only men devoid of fear and inhibitions can last in this rotten milieu.
What a mighty strange way to respond to the last round of corporate scandals--by introducing the concerns of one field even more dominated by scandal than corporate governance: politics.
The New Model CEO [Organizations and Markets]