The MBA Myth and the Cult of the CEO
Three decades ago, an influential Harvard Business School professor made the argument that CEO pay should be tied to stock performance. Was he horribly wrong?
This was amazing. Most critiques of the wildly outsized CEO pay talk about the morality and inequality - which brings up lots of thoughtful discussions; but I feel sometimes has a harder time bringing about change given current societal norms.
This article instead looks at the data, cut in many different ways and basically shows that CEO performance is indistinguishable from random. So many quotes in here that I can't pick just one to quote. So I'll pick out a bit from the conclusion:
"A Harvard Business Review article, “The Art and Science of Finding the Right CEO,” lists “proven track record” as a top, “obvious” criterion for selecting CEOs. But, to quote Sherlock Holmes, “There is nothing more deceptive than an obvious fact.”
Journalists, investors, and boards are placing excessive emphasis on CEO pedigrees and track records. In a world that is feedback-rich, stochastic, and “fat tailed,” the simple narrative of the “great man” does not appear to have much quantitative merit — rather, it seems like yet another cognitive bias in the vein of those discovered by Daniel Kahneman. "Posted on 2019-03-03T18:44:09+0000