Tag Archives: acronym

Posner is Right About Why Friedman is Wrong, But…

It’s worth reading Eric Posner on why Milton Friedman was wrong. My issue is with the historical setup to the argument.

The shareholder theory is usually credited to Milton Friedman, the University of Chicago economist and Nobel laureate. In a famous 1970 New York Times article, Friedman argued that because the CEO is an “employee” of the shareholders, he or she must act in their interest, which is to give them the highest return possible. Friedman pointed out that if a CEO acts otherwise—let’s say, donates corporate funds to an environmental cause or to an anti-poverty program—the CEO must get those funds from customers (through higher prices), workers (through lower wages), or shareholders (through lower returns). But then the CEO is just imposing a “tax” on other people, and using the funds for a social cause that he or she has no particular expertise in. It would be better to let customers, workers, or investors use that money to make their own charitable contributions if they wish to.

Friedman’s theory was wildly popular because it seemed to absolve corporations of difficult moral choices and to protect them from public criticism as long as they made profits. At the same time, it took CEOs down a peg—yes, they were resented even in 1970—by denying that they were visionaries with public responsibilities. And Wall Street saw dollar signs in the single-minded devotion to corporate profits.

Of course, Friedman never mentions “the CEO” in his 1970 article. Friedman uses “managers,” “businessmen,” and “corporate executives” to discuss the agents who enter into “voluntary contractual arrangement” with the corporation’s principals or owners: e.g., “the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.” As I’ve observed in a number of posts, the acronym “CEO” would not come into wide use until about five years later, and then only in business journals. The general public would not start hearing about CEOs until the very late 1970s and early 1980s.

So while business executives might have been “resented even in 1970,” CEOs strictly speaking were not. If this is a quibble it’s a revealing one. It allows us to see the CEO historically, and as the creature of Friedman’s wildly popular doctrine.

Though they, too, may have been targets of public criticism and resentment, by the 1980s CEOs were also being made into celebrities and held up as models of American leadership. And as “the single-minded devotion to corporate profits” — and rapidly rising CEO pay — came to be celebrated as “visionary” in its own right by the fledgling business press, the words “visionary” and “vision” would come in for decades of abuse.

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.