CEOs and the RiffRaff — A casual observation of a world with two realities

Scott Thompson - Yodel Anecdotal/Yahoo! Inc.

Scott Thompson – Yodel Anecdotal/Yahoo! Inc.

Bloomberg BusinessWeek reported today that Mr. Scott Thompson, the former Yahoo Chief Executive Officer, who left Yahoo in May after Yahoo shareholders had identified inaccuracies in his resume, has secured another CEO position.  He now heads up ShopRunner, a spin-off from GSI Commerce.

Unfortunately, perhaps, I was not surprised, that the level of diligence applied when hiring a CEO for a company with a market capitalization of close to $20 billion, or so, was less than that applied when my local municipality hires a bus driver.  Moreover, I was not surprised that Mr. Thompson was able to quickly secure another CEO position, while, I suspect that the aforementioned bus driver, if he or she found herself in a parallel situation, having, for instance, been found by his or her supervisor to not have a driver’s license at all, would have severe problems getting another bus driver position.

In fact, there seems to be at pattern whereby higher level positions are easier to get than lower level positions, provided that one has had a high level position with an large, well known company, even if the circumstances under which one left such position should disqualify one from — or at least impede one from obtaining a position of similar or higher level. 

Witness, for instance, the departure of Mr. Charles Phillips from Oracle (he held the position as co-President and departed in the midst of a scandal involving Ms. Wilkins, a mistress) and subsequent hiring by Infor six weeks later, and Mr. Mark Hurd’s departure from Hewlett Packard (he held the position as CEO and departed in the midst of a scandal involving his interactions — hmm — with a former soft-porn actor who had been hired by Hewlett Packard as a hostess — hmm — and related expense claims that he — or his assistant without his knowledge, depending on who you believe — had filed with the company) and subsequent, near immediate, hiring by Oracle as co-president, taking , in an ironic or perveted twist, Mr. Phillips’ former position.

It is interesting how the world appears to be a pyramid until you pass a certain point, and then it becomes a reverse pyramid with the tip pointing down.  As an investor, I see this again and again in relation to executive officers of public corporations, most markedly when it comes down to compensation at hiring, where the rules of supply and demand appears to be suspended on the CEO level, and when it comes down to compensation at exit.

As another example of this reverse pyramid, consider the hiring of Ms. Mayer as Mr. Thompson’s replacement. About one month after assuming the role as Yahoo CEO, Ms. Mayer revealed in a Fortune interview that she is pregnant with her first child and then went on to also break the word to the Tweeterverse. Evidently, she had told Yahoo’s Board of Directors about the pregnancy before she got hired and had gotten the job anyway. To the best of my knowledge Ms. Mayer is the first pregnant Fortune 500 CEO, ever, and I applaud, of course, Yahoo’s decision to not let pregnancy be an impairment for Ms. Mayer’s pursuit of the position as CEO. However, the question is whether a job-seeker applying for lower-level position in Yahoo would have received the same consideration. Unfortunately, I think the answer is no.

Unitek Global Services Headquarters

Unitek Global Services Headquarters

Unitek Global Services and a Martian Anthropologist

At Unitek Global Services (Nasdaq: UNTK,) one of the North American based companies that I follow, the previous CEO left abruptly at the end of 2011, prompting a search for a new CEO, which appeared to have attracted more than 200 candidates.

Unitek is a provider of services to the communication industry, a fairly well established industry in North America, so, with 200 candidates to pick from, one could reasonably expect three things: First, that a suitable person with a background in the communication industry could easily and promptly be found, second, that this person was already a CEO, and, third, that the compensation for the new CEO would be subject to the laws of supply and demand.  However, ultimately , after what I am sure was an extensive and thorough search (it certainly took long enough,) Unitek’s Board of Direcots retained  a senior leader from UPS with a compensation package that points to on target earnings well in excess of one million dollars per year – that is to say that the Board of Directors of Unitek picked a candidate from outside the communications industry, with no CEO experience, and paid top dollar of shareholder money for the privilege.  Moreover, in its press release announcing the hiring, the company emphasized the new CEO’s significant experience integrating acquisition — something that, for reasons that I will not bore you with right now, Unitek certainly don’t need.

Of course, I was not present in the Unitek Board of Directors meeting where the new CEO’s qualifications were discussed, but, in spite of this fact and based entirely on my experience of how these things go down in large publicly traded corporations, I would wager a sizable sum that a lot of weight was placed on the fact that the individual came from UPS, a company whose size dwarfs that of Unitek (although Unitek is no slouch.)

Needless to say (note that I am saying it anyway,) this kind of thing is extremely frustrating to investors.   Focusing simply on the compensation, consider the application of a similar approach in your private life.   If you have 200 or so lawn-mowing service providers to choose from, would you not, as a minimum, attempt to balance value with price, and, when faced with, say, 10 providers that bring the same value, would you not select the cheapest one — or, as an absolute minimum, negotiate for a lower price?  Well, the Board of Directors of a surprising array of publicy traded companies do no appear to agree with you, amounting to bloated CEO compensation and erosion of shareholder value.  This, of course, is a function of the larger issue of a systemic disconnect between company owners (investors,) its representatives (the Board of Directors), and the management, a collapse in corporate governance, if you will — something that I am quite sure I will be writing about in the future.

BTW, If you landed from, say, Mars, and conducted some sort of anthropological research on mankind, Unitek’s CEO search would look very strange indeed.   In particular if you, as part of your research, had recently observed the emergence of a job opening for a replacement bus driver for a municipal bus service where 200 candidates applied (and, I assume, competed furiously for the position as bus driver,) and observed that, first, the municipality was quite fast in hiring the new driver, ultimately hiring an individual with deep experience driving municipal buses and, second, that, due to the large number of candidates available (and budget pressures, of course,) the municipality put downward pressure on the candidate when it came time to discuss compensation.

In fact, had you first observed the CEO hiring, your hypothesis probably ought to be that the municipality would end up hiring a person whose experience was that of being the assistant to a long-haul tractor trailer driver (perhaps a loader or navigator, if such a job exist) for General Electric and that he or she would be extremely generously compensated.

You would, of course, have been wrong!

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One Comment on “CEOs and the RiffRaff — A casual observation of a world with two realities”

  1. […] more than $1 million in yearly compensation) – a decision process that I wrote about in a posting on this blog in which I questioned the hiring by viewing it from the perspective of a Martian […]