Tag Archives: CEO

The CEO Story, from Profitability Crisis to Polycrisis

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Michael Roberts’ historical chart of the G20 rate of profit.

I’ve written a little about the the invention of the CEO — the title, the office, and the social position described by that term. This chart from Michael Roberts’ blog showing the declining rate of profit can help reframe that discussion.

In this view, the term “CEO” first comes into use in the midst of the profitability crisis, in the late 60s and 70s, after the postwar Golden Age. The CEO’s heyday runs through the neoliberal recovery. The Fall of the Celebrity CEO (to borrow a term from Edelman) coincides with the start of the Long Depression.

Unfortunately, Roberts’ chart doesn’t run up to the present, which would show the rate of profitability continuing its decline in the face of multiple, entangled, global crises all at once, a polycrisis:

A global polycrisis occurs when crises in multiple global systems become causally entangled in ways that significantly degrade humanity’s prospects. These interacting crises produce harms greater than the sum of those the crises would produce in isolation, were their host systems not so deeply interconnected.

Having helped steer society to this precarious juncture, has the institution of the CEO now run its course? And what would it take to reinvent it, so that the business enterprise can help address the overlapping crises we face, improve humanity’s prospects, and play a constructive role in a new social contract? 

The First CEO: A 1966 Illustration

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An early illustration of the acronym “CEO” turns up in an influential book on corporate governance from 1966.

Back in 2012, I set out to track down the earliest illustrations of the acronym “CEO” (for Chief Executive Officer) and make some historical sense of the evidence I found. For the most part, I have been confining my searches to the American context, and looking at how the term “CEO” gains cultural currency even as real-world CEOs gain unprecedented power and social prestige in American life.

My initial search led me back to 1970 and the pages of the Harvard Business Review. Now I’ve uncovered an even earlier illustration, or, rather, a whole slew of earlier illustrations, in the pages of The Corporate Director, a book by Joseph M. Juran and J. Keith Louden published in 1966.

Juran was a highly influential figure, an industrial engineer turned management guru, mentor to Peter Drucker and W. Edwards Deming. He is remembered today primarily for his writings on quality. The lesser known Louden started out as an industrial engineer (like Juran), moved into the management ranks after the Second World War, and began writing about corporate governance and business leadership starting in the 1960s, with the publication of The Corporate Director.

Their recourse to the three letter “CEO” appears to have been mainly a matter of expedience: “‘chief executive officer,’” they write, “recurs so often in this book that we have chosen to use the shorthand designation ‘CEO’ instead.” (p. 10)

For these authors, the abbreviation CEO is not merely a title, indicative of “rank”: it designates a “role,” or “the broad function or job assigned to an individual.”

This book is primarily concerned with roles, duties, functions, deeds. Hence, as far as possible, it uses words in their sense of describing roles. To the same end, it avoids, as far as possible, the use of words which are mainly descriptive of rank without describing role; for example, “President,” “Officer.” Moreover, it uses the “role-describing” words in their uncapitalized form to emphasize the role rather than the title; for example, chief executive officer, chairman of the board. The abbreviation CEO (for chief executive officer) is capitalized only to prevent a three-letter word from escaping notice. (p. 77)

At the time, those performing the role of chief executive officer (or CEO) mostly had the title of “President.” Juran and Louden cite a 1962 study of 900 industrial companies, which found that the “role of CEO” was assigned to the President 70 percent of the time; the Chairman of the Board 25 percent of the time; and the Chairman of the Board and President 5 percent of the time.

With the libraries closed due to the coronavirus, I’ve only been able to find this 1962 study — a research report from the National Industrial Conference Board and the American Society of Corporate Secretaries by John R. Kinley, entitled Corporate Directorship Practices — on Google Books. No preview is available. A search for “CEO” here turns up 4 instances, but the results do not display the actual text. So there may be a 1962 illustration waiting to be found. Page 86 looks especially promising. (It’s worth adding, however, that the three letter cluster creates a lot of false positives, so I can’t know for certain until I see the actual page.)

Even so, I am uncertain that these earlier illustrations change the big picture. It still seems pretty clear that the 1970s — with the doctrine of shareholder value and the overall financialization of the economy — mark the beginning of the CEO’s American heyday. It’s possible the recent crises and the end of the post-2008 expansion will spell its gradual and inglorious end.

Posner is Right About Why Friedman is Wrong, But…

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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.

The Burgundy Ribbon Rule

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BurgundyRibbonsCalPERS

Another rule, and for the time being, at least, I am happy* with the wording here: an abuse of asking almost always presents an abuse of power.

Take the case of burgundy affair at the public pension fund CalPERS, as documented by Yves Smith over at Naked Capitalism.

This past fall, documents obtained by Smith show, CalPERS CEO Marcie Frost “asked the CalPERS senior leadership team to wear burgundy to show their support for her” as she faced questions about representations she had made regarding her educational background before and after she was hired. Burgundy ribbons were set out in break rooms with messages urging the “Team” to wear one in a show of support. “No pressure and no problem if you do not want to do this,” the message reads, “it is completely voluntary.” Completely.

“This is obviously inappropriate,” writes Smith,

since a request made by a CEO is effectively an order. CalPERS executives and employees are civil servants, not Frost’s personal retainers. As an expert on managerial and political conduct reacted:

I don’t even know what category to put this in. A scandal-plagued boss orchestrating support by inventing gang colors and pressuring employees to wear them? What happens to the employees who don’t perform this ritual of fealty? Should they be polishing their resumés and practicing their swimming skills?

These incidents smack of underlying panic. Frost is working overtime to shore up her position as CEO in the face of fully deserved questions regarding her long history of misrepresentations about her background, which include committing perjury in Washington on a gubernatorial questionnaire. Not only is Frost pushing her subordinates far too hard to back her up, since they can only do so much for her and coercing them will diminish their good will, she is also showing a lack of a sense of professional boundaries….

Frost’s burgundy campaign may well have crossed the line into creating a hostile work environment. One senior staff member who came to the office and saw the “dress burgundy” request too late to comply issued a written apology. Similarly, when “asked” to wear burgundy to an offsite, one [employee] who wears only black and white felt compelled to buy a burgundy outfit to comply…

…word clearly got around quickly, including the notion that non-compliance was risky.

I am still fussing over the word “presents,” and I’ve considered “masks” and variations in that direction, as well as “declares,” “represents” or “signals.” That one abuse (presenting an order as a request) almost always carries the other with it — almost always, because I don’t want to get caught up right now in handling exceptions — is the essential thing.

You can read my other posts about asking here.

*Postscript: On reflection, I might prefer this much more straightforward and concrete formulation: when someone presents an order as a request, look for an abuse of power. That way, we don’t have to worry too much about motives, or figure out whether the person doing the asking is trying to get away with something. It falls to the person being asked to watch for abuse, and conduct herself accordingly. (Being asked for something, or to do something, turns the ethical spotlight on you, or at least requires you to share it with the person doing the asking. This is your moment.) In a case like the present one, and in most superior-subordinate relationships, calling out abuse may be impractical. Subordinates will bury grievances, reluctantly comply, or pretend not to have been aware of the request. The subordinate’s dilemma in this case registers a failure of governance; a failure of governance at the highest reaches makes itself manifest at even the lowest levels and in the most trivial matters (the wearing of a ribbon). More immediately, presenting orders as requests hijacks power, creates distrust (after all, we can’t help but wonder about motives), and makes people prone to dissemble. All this thwarts collaboration, or the power to do things (to act) together.

A Quibble Over Robert Reich’s “CEO” Statesman

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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.

Varoufakis on Bankruptocracy

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At an anti-austerity event at the Emmanuel Centre in London yesterday evening, former Greek Minister of Finance Yanis Varoufakis offered a few remarks on the period in which we are now living. Here is my transcript of the part of his talk describing the zombie state of “bankruptocracy” that arose after “capitalism died” in 2008.

When the bank of England prints billions and billions and billions to buy these paper assets — which are mortgages, which are private debts of the banks, which are public debts and so on and so forth —  what happens is two things.

Firstly, house prices increase, in the parts of the country where wealth is concentrated, the wealthy people spend more, their income increases, so there is this sensation among the ruling class that they’ve stabilized the economy because their bottom line has been stabilized.

At the very same time, you have a situation where companies have access to cheap money, courtesy of QE. The tragedy however is, what do they do with this money? Now they’re not dumb. They know that the rest of you cannot afford their goods and services, so they’re not going to invest in productive activity, in order to produce more of them. So what do they do?

They borrow the money that the QE program is producing, giving it to the banks; the banks pass it on to the corporations; and what do the corporates do? They buy back their own shares. They borrow money to buy back their own shares because that way, they push the share price up, and guess what the bonuses of the CEOs are connected to? The share price. So they have more income, and all this money creation, liquidity creation, does not find itself not only in the pockets of working men and women; but it doesn’t even find itself into productive investment into capital.

So we have a capitalism without capital. We have a capitalism with financial capital.

We don’t live in capitalism.

In 1991 socialism collapsed; and the socialist camp and the left worldwide suffered a major defeat, both a political and a moral defeat. And we’re culpable for that, but that’s another story.

In 2008, capitalism died. I describe the new system we live in as “bankruptocracy”: the rule by bankrupt banks that have the political power to effect a transfer — a constant tsunami of money coming from the financial sector and from working people into the bankrupt banks, which remain bankrupt even though they are profitable, because the black holes created during the years of Ponzi growth prior to 2008 remain.

You can watch the whole speech here, on Varoufakis’ site.

The First CEO: A Political Revolution?

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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

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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.”

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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

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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.

Has Management Become Significantly More Incompetent?

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I don’t really have a dog in the Lepore-Christensen fight. Lepore’s strongest point, that Christensen’s theory of “disruption” is both a flawed theory of history and itself an artifact of history, seems to have gotten lost in the fray. Lepore overreached in her New Yorker piece, and now Christensen’s adherents and acolytes have come out in full force. There hasn’t been much room for careful discussion of Christensen’s theory as a discourse or artifact of post-industrial social collapse — which is, I suppose, what interests me most about it.

Still, I’m following the controversy, and yesterday, John Hagel offered a welcome, level-headed contribution to the discussion. Here, I simply want to paraphrase the comment I left on his post, because it touches on some themes I’ve written about in connection with the rise of the CEO (notably here, here and here.)

Hagel wants to move the discussion of Lepore-Christensen away from intramural antagonism and the clash of personalities and disciplines to look at “fundamental and systemic trends.” Clearly, he says, “something very profound is happening — and it’s largely escaped notice.” One measure of this bigger shift: “the topple rate at which US public companies in the top quartile of return on assets performance fall out of… leadership position.” That rate, he notes, increased 40 percent between 1965 and 2012.

There are lots of possible explanations for that wild increase. It seems safe to say there must be some great historical forces at work. Otherwise, Hagel writes, “one would have to believe that management is becoming significantly more incompetent over time”; and I guess nobody would seriously believe that. Here, at least, we’re meant to pass over the thought with a knowing smile: of course management has not become significantly more incompetent over time. Right?

I didn’t seriously entertain the thought of growing managerial incompetence again until I arrived at Hagel’s concluding paragraph. There, he offers a few suggestions on how incumbent players might “more effectively respond to these disruptive approaches (short of resorting to regulation and other public policy measures).” One suggestion is that management find ways to take the long view: incumbent players need “to find ways to expand the horizons of their leadership team beyond the next quarter or next year.” Myopia is always dangerous, and more dangerous now than ever before.

At the same time, short-sighted management has a history, and as I’ve suggested in my posts on the rise of the CEO, the most interesting chapter of that history starts right around the time the topple rate increases, in the 60s and 70s.

Around 1965, as profit rates in manufacturing fall and as the postwar boom yields to post-industrial reality, new ideas of management take hold. One of them is what Jack Welch once called “the dumbest idea in the world”: the doctrine of shareholder value. As this doctrine becomes boardroom religion, we see the rise of the “CEO” as corporate savior (in Rakesh Khurana’s phrase) and cultural celebrity.

Short-termism and, in some cases, risky financial manipulation become the name of the game. Compensation packages reinforce bad habits. Strategists and management consultants take their cues from the C-Suite, and tailor their offerings accordingly.

I’m not saying the rise of the CEO, the doctrine of shareholder value, or the promise of sustainable competitive advantage in the 70s and 80s explain the increase in the topple rate, but clearly they should be taken into account here; and we should give growing managerial incompetence its due. Bad ideas about what counts as business success — and misguided actions by business (and political) leaders — certainly make businesses more vulnerable to the kind of disruption that interests Hagel: the loss of leadership position.

Big scary historical forces may be overtaking us, but if competence in the face of those forces is what we’re after, then failed ideas of corporate purpose and failed models of corporate leadership ought to be called out, questioned, and radically altered or just dropped.