Are CEOs really as important as we’re led to believe?

A book of randomness and chance I’m reading suggests not.

Leonard Mlodinow’s ‘The Drunkard’s Walk: How randomness rules our lives’ has a beautiful example that illustrates the role of chance in performance and that shows how assumptions are made when using past performance to predict future results.

He takes the CEOs of the top 500 (Fortune 500) companies and assumes each of them has a certain probability of success each year, defined by their own company’s measure. And also assumes that these successful years occur at a frequency of 60%. He asks whether this means in a 5-year period each CEO will have a 60% success rate (3 successful years).

And he shows that the chances that in a given 5-year period any single CEO’s success rate will match the underlying rate is 1 in 3. In terms of the Fortune 500 companies this means that over the past 5 years (not an insignificant amount of time) around 333 CEOs would demonstrate results that did not reflect their true ability!! And by chance alone around 10% of the CEOs will have a 5 year winning or losing streak.

I have always argued that CEOs (and football managers, etc) often seem to be given credit and apportioned blame in amounts disproportionate to their real observable effect on a company. If only because they haven’t been at the company long enough for the results to shake off the randomness that can crop up anywhere.

Mladinow’s book has more insights on related topics such as

• The Law of Large (and small) Numbers (small sample sizes not reflecting true results, like for example “8/10 women prefer this shampoo to others” when only 100 women have been asked..)

• Human preferences for spotting patterns where there is true randomness, and vice-versa.

• Determinism where actors (in the social science sense) believe and act as though they have a greater say in an outcome than is true.

Mladinow also highlights throughout the book areas such as medical trials, court trials and betting shops, as well as day-to-day life, where knowledge of randomness and chance is absolutely critical.

Read it!

I have been the victim of severe neglect! No, not from the doctors at the hospital; my lobotomy worked out just fine. I mean from my teachers at business school.

I never understood why the Art of Sabotage is not taught by any business school. While studying I searched in vain for any mention of deliberate strategies to unseat your opponent, apart form the occasional doffing of the hat to the impenetrable text of Sun Tzu’s ‘Art of War’.

This would be like enrolling in a school of wizardry and witchcraft that didn’t teach you Defence Against The Dark Arts, indeed where they told you blithely that the ‘Dark Arts’ don’t exist, even though you as a speccy kid with a scar on your forehead shout “But the Dark Arts killed my parents!!!”

Are they scared of creating a ‘One-Who-Must-Not-Be-Named’, a Saboteur Extraordinary? (This reminds me of a Frank Herbert sci-fi novelette, set in a future where bureaucracy ran so smooth a governmental Bureau of Saboteurs was required to keep things operational)

But we all know there are countless ‘Companies-Who-Must-Not-Be-Named’ that are at this very moment ripping the eyes out of any competitor. While kicking them in the nadgers.

On a more personal scale you may have noticed this yourself (I shall claim not to have met any such characters personally); the nefarious schemers (Weasels of Dilbert) undermining each other to get a raise. And simple economics suggest that as long as office politics are arranged as a tournament, where the best performer gets rewarded, this will continue. Because one sure way of making yourself appear the best performer, apart from doing any actual hard work, is to make your colleagues appear dumber by comparison.

Logical enough. But why don’t we see this mentioned anywhere? I guess it’s because business studies are for business managers, who haven’t any answer to the conundrum of arranging work so that everybody contributes, while getting just reward.

And we sure don’t want to endorse sabotage as a viable option.

I suppose it’s a subset of the question of morality, and whether doing the right thing can be counterproductive to an individual. As Nietzsche said, some morals were created by man to hold back superman from acheiving what he could.

Is sabotage the unspoken truth? The elephant in the room? Is it a fact of business, nay life, that goes unmentioned but hovers around in the background like the smell of last night’s kebab, permeating everything with its odour?

And more importantly, is there money to be made writing a book called the Art of Sabotage…? 😀