Tag Archives: 1970s

The First CEO: A Political Revolution?

I’ve been associating the cultural icon of the CEO with big changes in America, most of which were well underway in the 1970s, when the acronym “CEO” first comes into wide use: the collapse of manufacturing, the financialization of the economy, the emergence of the neoliberal order. David Graeber offers yet another way to characterize these changes: “total bureaucratization.”

An excerpt from Graeber’s new book in the latest issue of Harpers lands us in familiar territory:

What began to happen in the Seventies, which paved the way for what we see today, was a strategic turn, as the upper echelons of U.S. corporate bureaucracy moved away from workers and toward shareholders. There was a double movement: corporate management became more financialized and the financial sector became more corporatized, with investment banks and hedge funds largely replacing individual investors. As a result, the investor class and the executive class became almost indistinguishable. By the Nineties, lifetime employment, even for white-collar workers, had become a thing of the past. When corporations needed loyalty, they increasingly secured it by paying their employees in stock options.

What Graeber at first characterizes as “a strategic turn” and the merging of the corporate and financial sectors, he then goes on to call “a political revolution”:

At the same time, everyone was encouraged to look at the world through the eyes of an investor — which is one reason why, in the Eighties, newspapers continued laying off their labor reporters, while ordinary TV news reports began featuring stock-quote crawls at the bottom of the screen. By participating in personal-retirement and investment funds, the argument went, everyone would come to own a piece of capitalism. In reality, the magic circle only widened to include higher-paid professionals and corporate bureaucrats. Still, the perceived extension was extremely important. No political revolution (for that’s what this was) can succeed without allies, and bringing along the middle class — and, crucially, convincing them that they had a stake in finance-driven capitalism — was critical.

The parenthetical affirmation — “(for that’s what this was)” — asks us to pause and really take the point. Having read only this excerpt, I don’t know whether Graeber goes on to explain why what he elsewhere calls a “shift” or “turn” counts as a “political revolution,” or how exactly he thinks this overturning of the political order was brought about. No doubt there was fraud, collusion and conspiracy, and “everyone was encouraged” to believe they were included; but the passive verb here leaves way too much unsaid. For one thing, the triumph and establishment of  the new order at home and abroad was really not so bloodless as Graeber (here, at least) makes it out to be.

The celebration and glamorization of the CEO — as a leader, a rule-maker and a rule-breaker, the agent and steward of shareholder value — was one of the things that duped ordinary, middle-class Americans into thinking “they had a stake in finance-driven capitalism.” It deserves a chapter in the story Graeber’s out to tell. The acronym “CEO” itself belongs to what Graeber calls the “peculiar idiom” of “bureaucratic techniques” and meritocratic myths — a language with origins in self-actualization movements of the 1970s, “full of bright, empty terms like ‘vision,’ ‘quality,’ ‘stakeholder,’ ‘leadership,’ ‘excellence,’ ‘innovation,’ ‘strategic goals,’ and ‘best practices.’” It’s good to see this language held up for scrutiny, especially since, as Graeber rightly points out, it still “[engulfs] any meeting where any number of people gather to discuss the allocation of any kind of resources.” To the victors go the spoils, and that’s not likely to change as long as we are speaking their language and playing by their rules.

Strategy’s Eclipse and the Big Chief

One of the more provocative business articles I’ve read lately appeared just last week, on forbes.com. It’s a piece by Steve Denning about the collapse of the consulting firm Monitor. The article has already generated thousands of comments and what its own author, in a follow-up post, calls a lot of “social media brouhaha”.

Most of the discussion so far focuses on Denning’s analysis of Monitor’s collapse. He traces the firm’s demise to Michael Porter’s flawed idea that “sustainable competitive advantage” could be gained in markets “by studying the numbers and the existing structure of the industry.” Monitor, in Denning’s view, was selling an “illusory product” that merely “supports and advances the pretensions of the C-suite.” Where Monitor’s approach to strategy failed was where it matters now more than ever: helping businesses connect with or “delight” customers, or innovate, or do things that customers (or, for that matter, society as a whole) want them to do.

Not everyone agrees with this analysis, of course, and Denning has been responding to criticism and comment on the Forbes site and on Twitter. I am more intrigued by what Monitor’s downfall might signify – whether it indicates that there are larger changes afoot.

Denning himself wonders if the firm’s collapse marks the end of an “era”. Several of his readers and Tweeters (including me) have suggested that pure strategy plays are simply no longer viable. But that observation only scratches the surface, I think. The downfall of Monitor may indicate something else as well – a larger change in the configuration of CEO or executive power within the enterprise, and the end of a certain idea or iconography of the CEO.

Denning approaches this very thought as he lays out his historical argument, which is basically the story of how Michael Porter got lucky and launched Monitor at precisely the right moment. When Monitor first appeared on the scene in 1979, writes Denning, a new era was dawning:

Pursuit of shareholder value (“the dumbest idea in the world”) was just getting going with a vengeance. The C-suite was starting to realize that they could cash in, big time. Along comes Michael Porter with a rain dance that justifies their cashing in. Porter arrived at just the right time. Hopefully that era is now coming to an end. People are starting to see the rain dance for what it is.

I would hasten to add that the dumbest idea in the world, the doctrine of shareholder value, helped usher in another very bad idea that is still very much with us — the idea of the “CEO” that started to take hold at roughly around the time that acronym first appeared on the scene, in the early 1970s. The CEO is largely an invention of that period.

I’ve taken up this theme in a few posts (here and here and here). A number of journalists and academics have addressed this same point, directly and indirectly. For Rakesh Khurana, the cultish construct of the CEO emerges out of the transition from managerial to investor capitalism. In response to the growing power of institutional investors (like pension funds, bank trusts, insurance firms, endowment funds, and money managers), boards had, by the 1980s, come to focus almost exclusively on the search for an outside celebrity CEO “savior” who would not only appease and appeal to newly-empowered institutional investors but also make a big splash in the newly-emergent American business press.

Needless to say, this further consolidated decision-making power at the top of the corporate hierarchy. At the same time, the newly powerful CEO had become a cultural icon of celebrity and success. We made a totem of corporate executive power.

If the mantra of investor capitalism was “shareholder value,” the central mystery of the new faith was the “agency” problem (as described in a now-canonical 1976 paper by Jensen and Meckling [pdf]). The interests of shareholders and managers were now to be “aligned.” Results have been mixed: a myopia set in, putting the “focus more on the short-term management of the share price,” writes Christopher Bennett on a Conference Board blog post, “and less on the long-term management of the business.”

In a Washington Post Op Ed, Michael Useem (who’s written the book on investor capitalism) takes it one step further. He connects the “unrelenting pressure of the equity market on company leaders to meet quarterly TSR expectations” with the offshoring of operations, “regardless of the impact on the domestic workforce.” Worse, it’s invited leaders to behave like sociopaths, or at least irresponsibly: “an incessant equity-market demand on company leaders to focus on their own advantage whatever the disadvantage for others” has made “fewer executives and directors…able to step forward to advocate what is required for a vibrant economy, not just what is required for their own prosperity.”

Shareholder value may have not have been the dumbest idea ever, as Denning would have it, but it was, at best, a Faustian bargain for American society. It was an important article of faith — and not just for the believers, but for society as a whole, during the period in which the celebrity CEO took on his (yes, usually his) unique features and cast, all the trappings of his office.

Strategy, especially Monitor’s brand of strategy, played a crucial role here. Denning refers us to a passage in Matthew Stewart’s The Management Myth:

Porter’s theory thus played to the image of the CEO as a kind of superior being. As Stewart notes, “For all the strategy pioneers, strategy achieves its most perfect embodiment in the person at the top of management: the CEO. Embedded in strategic planning are the assumptions, first, that strategy is a decision-making sport involving the selection of markets and products; second, that the decisions are responsible for all of the value creation of a firm (or at least the “excess profits,” in Porter’s model); and, third, that the decider is the CEO. Strategy, says Porter, speaking for all the strategists, is thus ‘the ultimate act of choice.’ ‘The chief strategist of an organization has to be the leader— the CEO.”

With the passing of Monitor, this concept of strategy may start to go by the board. And so, with any luck, will the idea of the CEO as the “superdecider” (Denning’s word) or super-anything. The rain dance is over, and we can now see the Big Chief as he really is.

Are the Seventies Finally Over?

Adam Nagourney had a piece in yesterday’s Sunday Review about the changing political allegiances of the Sunbelt and how those changes might signify “an era’s end.”

The Republican Party has grown used to having “a lock” on the region stretching from Florida through the south, and to Western states like Arizona, Colorado Nevada and California; but with the nomination of Frostbelt candidates Mitt Romney and Paul Ryan, the region looks up for grabs.

“Pummeled by the collapse of the housing market,” the Sunbelt suburbs have “soaring” poverty rates; and that, according to Harvard’s Lisa McGurr, “will transform the ability of the Republican party to appeal to suburbanites with private, individualistic solutions.”

What’s more, the Sunbelt’s demographics are changing – to illustrate, Nagourney mentions Latino and Asian “enclaves” in Orange County, and Latinos moving in large numbers to Texas and Arizona – even as Republicans have been pushing an anti-immigrant agenda.

If this week’s Republican convention marks the end of an era, it’s the end of an era that began in the 1970s. Then, a demographic shift from the industrialized Frostbelt to the Sunbelt precipitated the political realignment now on the wane. The northeastern liberal elite lost its exclusive hold on power; the liberal state came under assault. And when the barbarians arrived at the government gate, we gleefully let them in. All across the country, Americans were fed up with taxes, had lost faith in government, and began to disengage from public life. By the end of the 1970s, writes Bruce Schulman:

Americans not only accepted that markets performed more efficiently, but embraced the previously outlandish idea that they operated more justly and protected freedom more efficiently than government. The entrepreneur became a national hero, and suspicion of business, a mistrust of unregulated corporations that had anchored American politics since the 1930s, all but vanished from American political discourse. (The Seventies, p. 249)

Those were the days when Milton Friedman assured us that business had no greater obligation to society than to “maximize shareholder value”. This doctrine went hand in hand with Friedman’s hostility to the liberal state, his contempt for the inefficiencies of government, and his contention that free enterprise, unfettered by regulation and unburdened by taxes, would deliver political freedom and prosperity. What’s most striking is that by the end of the Seventies the majority of Americans had enthusiastically come around to that point of view. We all but abandoned the commons:

The slow march of privatization had pervaded the entire Seventies. It complemented all of the decades’ changes in attitudes: impatience with taxes and centralized authority, experimentation with new forms of community [including self-taxing private entities like homeowners’ associations and Business Improvement Districts, which supplanted and suborned municipal governments], Sunbelt self-reliance, and the fiscal crises that deepened municipalities’ reliance on private funds. (249)

The push toward privatization and “Sunbelt self-reliance” in the Seventies was also a retreat from the idea that we rely on each other – a retreat from the idea of “society” itself.

Hurricanes like Katrina or the one bearing down on the GOP convention this week don’t just threaten Sunbelt serenity; they are crises that heighten and exaggerate the shortcomings of the Sunbelt ethic. The same could be said for the financial tsunami that overtook us in 2008, and forced many people in the Sunbelt from their homes. (Foreclosure rates are high throughout the region.)

Despite the impending hurricane and the financial storm most Americans are still weathering, it’s unlikely anyone on stage in Tampa this week will speak about the limits of Reaganesque self-reliance or the things markets cannot do. But we have obligations to each other markets sometimes threaten, and sometimes simply cannot help us meet.

I’d at least like to think that with the Sunbelt’s eclipse more than the electoral votes of a few states are in play. Maybe, just maybe, the Seventies are finally coming to an end.