Tag Archives: acronym CEO

A Quibble Over Robert Reich’s “CEO” Statesman

JDZellerbach

J.D. Zellerbach

One of the posts on this blog with consistently high traffic is The First CEO, which was my first attempt to track down the earliest instances of the acronym “CEO.” With a little help from the people at Webster’s Dictionary and the Harvard Business Review, I found that those came in the 1970s. In subsequent posts on this theme, I tried to make some historical sense of the literary evidence I’d uncovered.

So I have a quibble with Robert Reich’s polemic in The American Prospect (and elsewhere; he’s syndicated), comparing the CEOs of today and their “shameful,” self-serving silence in the face of Trumpian authoritarianism to the “CEOs” of the 1950s:

I’m old enough to recall a time when CEOs were thought of as “corporate statesman” [sic] with duties to the nation. As one prominent executive told Time Magazine in the 1950s, Americans “regard business management as a stewardship,” acting “for the benefit of all the people.”

That prominent executive, held up here as a model corporate statesman, was pulp and paper executive J. D. Zellerbach. Zellberbach was not a CEO — he could not have been in the 1950s — but the President of Crown Zellerbach. Reich is using the term “CEO” loosely, then, but in this piece that seems to prevent him from thinking historically about the CEO as an institution.

Perhaps he should have instead asked whether the institution of the CEO in the 1970s represented a rejection of “socially-conscious” business leadership for which he’s calling.

Remarkably enough, in Saving Capitalism, Reich himself quotes Zellerbach’s statement to Time Magazine just before he discusses the shift from the benevolent managerialism advocated by industrialists like Zellerbach to “a radically different vision of corporate ownership” that set in during the 1970s (and brought with it, among other things, the institution of the CEO). It’s worth reading this passage to the bitter end:

In the early 1950s, Fortune magazine urged CEOs to become “industrial statesmen,” which in many respects they did—helping to pilot an economy generating broad-based prosperity. In November 1956, Time magazine noted that business leaders were willing to “judge their actions, not only from the standpoint of profit and loss” in their financial results “but of profit and loss to the community.” General Electric, noted the magazine, famously sought to serve the “balanced best interests” of all its stakeholders. Pulp and paper executive J. D. Zellerbach told Time that “the majority of Americans support private enterprise, not as a God-given right but as the best practical means of conducting business in a free society….They regard business management as a stewardship, and they expect it to operate the economy as a public trust for the benefit of all the people.”

But a radically different vision of corporate ownership erupted in the late 1970s and early 1980s. It came with corporate raiders who mounted hostile takeovers, wielding high-yield junk bonds to tempt shareholders to sell their shares. They used leveraged buyouts and undertook proxy fights against the industrial statesmen who, in their view, were depriving shareholders of the wealth that properly belonged to them. The raiders assumed that shareholders were the only legitimate owners of the corporation and that the only valid purpose of the corporation was to maximize shareholder returns.

This transformation did not happen by accident. It was a product of changes in the legal and institutional organization of corporations and of financial markets—changes that were promoted by corporate interests and Wall Street. In 1974, at the urging of pension funds, insurance companies, and the Street, Congress enacted the Employee Retirement Income Security Act. Before then, pension funds and insurance companies could only invest in high-grade corporate and government bonds—a fiduciary obligation under their contracts with beneficiaries of pensions and insurance policies. The 1974 act changed that, allowing pension funds and insurance companies to invest their portfolios in the stock market and thereby making a huge pool of capital available to Wall Street. In 1982, another large pool of capital became available when Congress gave savings and loan banks, the bedrocks of local home mortgage markets, permission to invest their deposits in a wide range of financial products, including junk bonds and other risky ventures promising high returns. The convenient fact that the government insured savings and loan deposits against losses made these investments all the more tempting (and ultimately cost taxpayers some $124 billion when many of the banks went bust). Meanwhile, the Reagan administration loosened other banking and financial regulations and simultaneously cut the enforcement staff at the Securities and Exchange Commission.

All this made it possible for corporate raiders to get the capital and the regulatory approvals necessary to mount unfriendly takeovers. During the whole of the 1970s there had been only 13 hostile takeovers of companies valued at $1 billion or more. During the 1980s, there were 150. Between 1979 and 1989, financial entrepreneurs mounted more than 2,000 leveraged buyouts, each over $250 million. (The party was temporarily halted only when raider Ivan Boesky agreed to be a government informer as part of his plea bargain on charges of insider trading and market manipulation. Boesky implicated Michael Milken and Milken’s junk bond powerhouse, Drexel Burnham Lambert, in a scheme to manipulate stock prices and defraud clients. Drexel pleaded guilty. Milken was indicted on ninety-eight counts, including insider trading and racketeering, and went to jail.)

Even where raids did not occur, CEOs nonetheless felt pressured to maximize shareholder returns for fear their firms might otherwise be targeted. Hence, they began to see their primary role as driving up share prices.

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.

A Fifth Note on the First CEO: The Postwar Fad

We don’t usually think of corporate boardrooms as places where fads start or take hold. But that’s probably the the best way to account for the adoption of the CEO title by American corporations in the postwar period. Or at least that’s the view urged in this 1999 paper by Allison and Potts, which a reader shared in a comment on my post about the postwar provenance of the term CEO: from the mid 1950s to the mid 1970s, the adoption of the Chief Executive Officer title spread, primarily through “board interlocks” — or through individuals serving on multiple corporate boards.

Allison and Potts present the title’s diffusion through corporate networks as a “no brainer,” “an innovation largely without consequence to adopters.” It was a case, they say, of “contact-only diffusion” or “diffusion with contagion,” in which no serious choices or business decisions had to be made; the title may have helped clarify the difference between President and Chairman, but for the companies Allison and Potts study there was no “non-trivial economic benefit or cost” involved. Companies adopted the title Chief Executive Officer largely because they were emulating other companies: “diffusion of the CEO title was strictly mimetic, a true fad.”

cumulativeCEO
Everybody was doing it. Container Corporation of America started the trend in the late 1940s: why, Allison and Potts don’t explain, but I hope to make some sense of that at some point in the future; it’s intriguing, to say the least, that the company led by Walter Paepcke — Aspen booster, patron of the arts, and promoter of big ideas — led the way. In 1955, CCA was the only one of the largest 200 industrial companies in the United States that had a Chief Executive Officer. By 1975, all but one of the bunch had adopted the title.

CEO Titles

The fad takes hold in four stages: an early period, from 1955-1961;1962-1965, when adoption rates climb dramatically; a late middle period, from 66-71; and a final period where we see adoption rates drop off, mainly due to the remaining number of small adopters.

Though Allison and Potts don’t distinguish the adoption of the Chief Executive Officer title from the use of the acronym CEO, it’s in that late middle period, which they call the “inflection point” of the fad, where we start to see the first traces of the acronym “CEO” in the Harvard Business Review and other business publications. Shareholder value theory makes its debut in 1970. By the time the fad has run its course, in 1976, Jensen and Meckling have published their theory of the firm: the CEO has been identified as the primary “agent” of the firm’s success. He has also begun to enjoy unprecedented political influence, social prestige and cultural celebrity. What began as a boardroom fad has produced a new icon of American power.

A Fourth Note on the First CEO: The Postwar Provenance

A reader of my posts about the acronym CEO suggests I have a look at the organizational chart for the Manhattan Project to gain a better appreciation for the “American and military” provenance of the term. “I believe during a period of intense collaboration between the military and private sector after WWII,” he writes, “it somehow permeated to corporate use.”

I have wondered about that “somehow,” and wondered, too, if I could be a little more specific about the course this permeation took. Is the acronym CEO — and the idea of the CEO — an outgrowth of the military industrial complex? Does the rise of the CEO to a position of cultural celebrity in the 1970s and 1980s tell us something (we don’t already know) about how the postwar environment shaped American ideas of command, power and leadership, in the private sector and in the public sector?

These are questions worth asking, I think, though I’m not sure the organizational chart for the Manhattan Project is the best place to start. Or at least that chart doesn’t include the term “CEO.” There is an “OCE” — an Office of the Chief of Engineers; the role of “Executive Officer” was assigned to J.B. Lampert. That title was also used in the appointment of Leslie R. Groves (of Now It Can Be Told fame), who in the org chart has the title of Commanding General.

The larger point here still merits consideration: just follow the careers of the engineers and military commanders identified in the Manhattan Project org chart, consider the military industrial development of the 1950s and the American business environment in which COs and XOs and members of the OCE worked closely with the private sector, and in many cases left the military to join the private sector: it’s easy to see how a new vocabulary of command might have emerged during that period, and eventually found its way into ordinary usage.

Still, I want specifics and cases I can point to. To that end, I’ve written to the company historian at General Electric, to ask whether the term CEO was in general use before the era of Jack Welch (who for a variety of reasons — not least for his cultural celebrity — probably deserves the title “The First CEO”). I’m looking for some examples of usage from the days of Ralph J. Cordiner (Chief Executive Officer from 1950-1963), Fred J. Borch (Chief Executive Officer 1963-1972) or Reginald H. Jones, who served from 1972-1981.

ReaganProgressGE seems like an obvious place to start looking. The company that brought us both Jack Welch and Ronald Reagan was, during the war and then in the postwar period, at the very center of military-industrial development; and big American companies like General Electric were never just manufacturing products — or even “progress,” which Reagan used to tout on TV as GE’s “most important product.” They were also designing models of power that persist to this day.

A Third Note on The First CEO

In a comment on one of my posts about the rise of the acronym “CEO,” a reader named Hugo reports some early Australian illustrations. I thought I’d lift Hugo’s notes from the comments and share them here, because the examples he’s found all pre-date the 1970 illustration of the acronym from the Harvard Business Review, which up until now I had taken to be the earliest. One dates back to 1914.

Time, again, to notify the dictionaries.

I found some earlier 1968 and 1950 examples in Australian newspapers, where chief executive officers were found at hospitals. I also found a 1917 [sic, but the source is from 1914] from a story about a town hall.

The Canberra Times, 27 July 1968, page 22:
[Begin]
Applications are invited for the above positions at the Hillston District Hospital.

Applications and enquiries to the undersigned or Matron Fairchild, Box 1, PO, Hillson, NSW, 2675.
R. I. Cross,
C.E.O.
[End]

The Sydney Morning Herald, 29 March 1950, page 30:
[Begin]
PARRAMATTA DISTRICT HOSPITAL.
Wanted. Experienced Sister to take
charge of the Out Patient Department
at this hospital.

N. B. FILBY,
Secretary and C.E.O.
[End]

Independent, 7 November 1914, page 3:
[Begin]
BEHIND THE SCENES
BY A TOWN HALL FLY

Of course I am the chief executive officer but I only execute by instructions.

“What a pity,” said the M.M., the C.E.O.

“Not at all, my dear young lady.” the C.E.O.’s voice was tear laden too.
[End]

Also uses G.H.U. a few times for Great High Understrapper.

I don’t think these earlier Australian instances should invalidate what I’ve said previously about the widespread use of the acronym CEO in the 1970s and 1980s. Those observations concern the use of “CEO” as an important marker of corporate power, social status and cultural celebrity in America, from roughly 1970-2010.

Still, it’s interesting to consider these early examples. The first two are abbreviations used in newspaper advertisements (maybe just to save money) for positions at hospitals, where the CEOs are clearly in charge of correspondence if not of hiring. Nothing too glamorous. [Update: And one reader, in a comment on this post, suggests that CEO in this context may mean “Catholic Education Officer,” adding that at this time in Australia, “nurses and religious orders go together.”]

The illustration from 1914 offers a satirical, behind-the-scenes account of a municipal office thrown into bureaucratic confusion by a report of 24 cows eating all the flowers and shrubs in the park. Underlings and citizens address the Chief Executive Officer by such honorifics as “Your Chief Executiveness” and “Most Magnificent” and, then, “CEO.” It is an empty title; he seems unable to execute anything at all: “Of course I am the chief executive officer,” he insists, “but I only execute by instructions.” When he finally understands the gravity of the situation, he acts: “I will tell somebody to tell somebody else to tell the inspector as soon as he comes in the morning at nine. I’m sure 24 cows won’t eat all the shrubs in that time.” He is very much the Chief, very much an Officer, but not much when it comes to Execution.