The omnipresent CEO: an enduring myth

What is the myth perpetuated that everything about business is down to the CEO? Gideon Haigh looks at a world of corporate capitalism which has never been so personalised

Joe Hyman of the textile giant Viyella kept for much of his life a particular routine. He maintained residences near all his mills where the lights would be left burning all night; occasionally he would drop in on night shifts, and spread the word he'd visited others. Being a chief executive, he explained, was in part metaphysical: 'I have to become a myth. People must believe I'm here even when I'm not.'

That's what it was, of course: a myth. But, whilst we might live in an era of quantification and accountability, the myth of the omnipotent, omniscient CEO is an enduring one. Never have markets seemed more powerful, volatile, and dwarfing of human scale; never have corporations been so complex, so dispersed, so culturally diverse, so 'virtual'; yet never has corporate capitalism been so personalised.

For a good many manifestations of the myth, of course, you can blame us - the media that is. A hardy perennial of modern newspaper business sections and periodicals, for instance, is the survey purporting to order CEOs by their company's profitability growth, or analysing their remuneration as a proportion of capitalisation or factor of their share price/dividend performance.

These surveys satisfy the hankering for ranking and rivalries - but what else? Technically, they contain the assumption that all things are equal, overlooking discrepancies between costs of capital, returns on equity and accounting standards at different companies, the varying growth prospects and expense pressures of different industries, never mind apples and oranges - these are comparisons of apples, rocks, frogs and football boots.

They rely, too, on related philosophical premises: that the CEO is sole author of a company's fortunes, and that annual net profit and/or share price growth faithfully express the exertions of the year for which the remuneration was paid. Humbug, of course. But we're not the only folks who've invested in this idea.

No-one would contend that CEOs make no difference at all. The CEO who is also a founder obviously wields immense influence; those with the confidence of investors can also be a boon; those without a heavy burden. Yet the primacy of the man or the woman at the top, and the premium his or her services command, is a bizarre idée fixe. Book after turgid management book in recent times has extolled the virtues of 'teams' - but we still think of the CEO singly, a heroic Hercules on stable duty for Augeas.

Our usual metrics of corporate performance, furthermore, are primitive tools for individuating entitlements, and for one very good reason: that's the way it was meant to be. The whole objective of the modern industrial corporation is to combine the many in one. As Stanford University's Jeffrey Pfeffer put it in The Human Equation (1998): 'In general, the greater the interdependence among various members of the organisation, the more difficult it is to measure their separate contributions. But, of course, intense interdependence is precisely what makes it advantageous to organise people instead of depending wholly on market transactions.'

It is said that when Peter Salsbury was wrestling with the crisis at Marks & Spencer five years ago, he ordered portraits of the former chairmen removed from the boardroom. 'I don't like them looking down on me,' he explained disconsolately. In a very real sense, however, the past does bear down on the modern CEO: his resources, his remuneration and even his reputation derive from a present profitability based heavily on historical decisions in which he played no part. The CEO of a resources company will owe much of his pay to the choices of his predecessors, to explore certain prospects, to develop certain mines or fields. The CEO of an IT group or electrical goods manufacturer will benefit predominantly from brand names, patents and royalties long predating him. Even businesses with the shortest time horizons, like those involved in trading, draw on past efforts to build capital bases, credit ratings, relationships and reputations.

One of the neatest metaphors for this is contained in The Seven Cultures of Capitalism (1992) by management scholars Charles Hampden-Turner and Fons Trompenaar: 'Giving top executives bonuses based on these [past] accumulations is like overpaying the person who waves his fingers over the player piano on which the tunes were programmed many years earlier. In practice, it is not possible to calculate what a current CEO owes to the corporation as a community, which has learned and gathered expertise over time, and what that community owes him for his contemporary activities.'

The situation is reminiscent to Dr Johnson's remark about ghosts: that 'all argument is against them, all belief for them'. In practical terms, CEOs can know only a fraction about the various processes in train in their corporations, and understand in detail even less; their active involvement in implementation these days is probably more circumscribed than ever. Yet bizarrely, as BHP Billiton's Paul Anderson complained last year, they've never been credited with greater powers: 'Everything is attributed to the CEO whether it's good or bad. It's 'The CEO did this, the CEO did that'. But in the case of BHP Billiton, 50,000 people did something and the CEO just happened to be standing there while it all happened.'

In recent times, of course, CEOs have been 'standing there' preparatory to wheeling away barrows of banknotes, thanks to equity remuneration of sometimes breathtaking generosity. The manner of this wealth transfer has been its most seductive aspect. It was never decided that CEOs should be paid more; it was theorised, first about 20 years ago, that they should be paid differently, to align their interests with those of shareholders. The market did the rest - so it must've been right, mustn't it?

The effect was to leverage remuneration to something even harder to predict and influence: the sharemarket cycle. How does a CEO deserve a bull market? It is not so much the sums they were paid that was so impressive; it was the capacity of recipients to accept them with such straight faces. Mind you, one expects any moment a mass class action of CEOs from the 1970s: judging by current pay rates, it is clear that they were wantonly exploited.

The implications of this shift are still to be fully revealed; we have been slow to consider how this new alignment would bear on old ones. Money does not merely motivate those who receive it, it can also demotivate those denied it. Ken Iverson, Nucor's revered founder, wrote in his autobiography Plain Talk (1998): 'The people at the top of the corporate hierarchy grant themselves privilege after privilege, flaunt those privileges before the men and women who do the real work, then wonder why employees are unmoved by management's invocations to cut costs and boost profitability... When I think of the millions of dollars spent by people at the top of the management hierarchy on efforts to motivate people who are continually put down by that hierarchy, I can only shake my head in wonder.' The trouble arises not when CEOs participate in a myth; they always have to some degree. It is when they come to believe it.

Gideon Haigh is the author of Bad Company: The Strange Cult of the CEO, published by Aurum Press at £6.99.