Links - 7th September 2018 (1)

What Does a C.E.O. Actually Do? - Freakonomics Freakonomics - "BLOOM: It’s an amazing fact when people mention C.E.O. they think of an older white man in charge of a company of 10,000 people. In fact there are 6 million companies in America. The median company, so the 50th percentile, has three employees and the most common company size has one. Actually, almost every C.E.O. out there that you’re going to meet is going to be in charge of 5 or 10 people... you do definitely want to pay these individuals a lot. Why? One is — you want to select people into the job. It’s frankly a horrible job. I wouldn’t want it. Being a C.E.O. of a big company is a hundred-hour-a-week job. It consumes your life. It consumes your weekend. It’s super-stressful. Sure, there’s enormous perks, but it’s also, all-encompassing, and particularly for people with kids, you really want to make sure that they’re motivated and also rewarded. And since these individuals are running massive companies, their actions affect all of us every day. It’s not just big, pub-listed companies. You got to think of C.E.O.’s of hospitals, school districts, and the government. Everything we do is affected by their actions...
SONNENFELD: And more than being overpaid, there’s very little correspondence between performance and pay. There are some very strong companies, historically, say, United Parcel Service, which rank at the bottom, in terms of compensation. But Philippe Dauman, who ran Viacom ‘til recently, was being paid more than the very high-performing C.E.O.’s of Disney and Time Warner combined! And Viacom was a disaster. People like to talk about, what’s the ratio against the average employee? No, even worse is the lack of correspondence between pay and performance...
Being a C.E.O. is horribly selected on having taken a lot of big bets in the past and then successively paying off. Risk-taking is an attribute we end up selecting in our successful C.E.O.’s, but I’m not sure it’s actually one that you’d want if you pick someone at the outset. Steve Jobs famously had his reality-distortion field and ignored all of his advice and pushed ahead and did well anyway. But I could mention Elizabeth Holmes at Theranos who was also apparently had a reality-distortion field. And the company crashed and burned. And I’m sure there are 50 other examples of Theranos out there. I’m very nervous about taking these anecdotes and looking only at winners. If you want to do well, you want to look at winners and losers — basically take everyone that starts and see who tracks, and then you’ll find the risk-taking C.E.O.’s, many of them crash and burn. We just never notice them because they drop out of the press."

How to Become a C.E.O. - Freakonomics Freakonomics - "A 2009 academic study, which analyzed established public companies from 1986 to 2005, found that internally promoted C.E.O.’s led to at least a 25 percent better total financial performance than external hires.” A 2010 study by Booz & Company similarly found that, in 7 of the 10 previous years, insider C.E.O.s delivered higher market returns than external hires. And yet: external hiring seems to be on the rise: in 2013, between 20 and 30 percent of boards replaced outgoing C.E.O.’s with external hires; a few decades ago, that number was only 8 to 10 percent. Outside hires also tend to be more expensive: their median pay is $3 million more than for inside hires. So, an external hire will, on average, cost you more and perform worse. And yet that’s the trend...
BARTZ: Well, I was in a limo driving into New York City when I got a call from Roy Bostock, the chairman of the board, and told me I was fired. I was literally 20 minutes away from where he was physically located. He didn’t have the nerve to see me face-to-face. I do not believe that that would have happened to a man. He didn’t have the nerve. Now I like to think he didn’t have the nerve because he knew I would probably punched him out."
If you would've punched him out, it was a good idea not to meet you

“I Wasn’t Stupid Enough to Say This Could Be Done Overnight” - Freakonomics Freakonomics - "DUBNER: You, like most big public companies, have dealt with activist shareholders. You seem to have taken mostly a firm line with them, including Nelson Peltz, who wanted you to spin off Frito-Lay. He eventually exited his position in PepsiCo with a pretty nice profit. I’m curious what you did to celebrate when Nelson Peltz exited that position?
NOOYI: Believe me — and this might sound incredulous — but we didn’t celebrate when he came in, and we didn’t celebrate when he left. Because at the end of the day we’re all activists inside the company. I mean, I own almost 50 times my salary in PepsiCo stock. My entire net worth is tied up in PepsiCo. And if somebody as an activist came into the company and suggested we do things differently, we study every idea very, very carefully. Because if they have an idea for us to run the company better than we are, we will incorporate it. But if their idea has more risks than upsides, then we have to worry about the company. At the end of the day, we are maniacally focused on the success of PepsiCo and our shareholders. And we’re not just listening to ideas. We think about the implementation. When Nelson Peltz came — and believe me — when he presented his white paper to us, we studied every chart, every idea, and had multiple conversations with him, because at the end of the day we viewed him as free consulting — painful, but free consulting...
NOOYI: When you eat out of a flex bag — one of our single-serve bags — especially as you watch a lot of the young guys eat the chips, they love their Doritos, and they lick their fingers with great glee, and when they reach the bottom of the bag they pour the little broken pieces into their mouth, because they don’t want to lose that taste of the flavor, and the broken chips in the bottom. Women would love to do the same, but they don’t. They don’t like to crunch too loudly in public. And they don’t lick their fingers generously and they don’t like to pour the little broken pieces and the flavor into their mouth... “are there snacks for women that can be designed and packaged differently?”... For women, low-crunch, the full taste profile, not have so much of the flavor stick on the fingers, and how can you put it in a purse?...
One of the things that my experience has taught me is that if you are trained as a scientist in your youth — through your high school and college — if you stay with the STEM disciplines, you can learn pretty much all of the subjects as you move along in life. And your scientific disciplines play a very important role, and ground you very well as you move into positions of higher and higher authority, whatever the job is. It’s very hard to learn science later on in life. One of the pleas I would have for most young people today is, “stay with STEM as long as you can.”...
I’ll tell you a story that happened when my daughter went to Catholic school, Convent of Sacred Heart. Every Wednesday morning they had class coffee with the mothers. Class coffee with mothers for a working woman — how is it going to work? How am I going to take off 9 o’clock on Wednesday mornings to go for class coffee? So I missed most class coffees. My daughter would come home and she’ll list off all the mothers that were there and say, “You were not there, mom.” The first few times I would die with guilt. But I developed coping mechanisms. I called the school and I said, “give me a list of mothers who are not there.” When she came home in the evening she’d say “You were not there, you were not there.” And I said, “ah ha, Mrs. Redd wasn’t there, Mrs. So-and-So wasn’t there. So I’m not the only bad mother.” You have to cope, because you die with guilt. You just die with guilt. My observation, David, is that the biological clock and the career clock are in total conflict with each other. Total, complete conflict."

After the Glass Ceiling, a Glass Cliff - Freakonomics Freakonomics - "RYAN: In November 2003, the Times in London printed an article that was looking at how women were performing in the top companies on the London Stock Exchange. And what they were saying is that companies that had more women on their boards of directors tended to be worse, in terms of their average annual share price, compared to those companies that had less, or indeed no women. And their conclusion was that women were wreaking havoc on company performance... If the Times article was correct, we should see that after women were appointed to these boards of directors, share price should go down. But actually what we found was the opposite. What we found was when companies had been doing poorly, when their share price had been declining, they then appointed women to their boards of directors. So what we found was a really different causal problem. Rather than women wreaking havoc on company performance, what we found was when companies were doing badly, they were much more likely to appoint women...
There’s some sort of preference for women when all is going badly... there’s some evidence that there are stereotypes, gendered stereotypes about men and women, that suggest that women might be better leaders in times of crisis...
A British tabloid that twisted the story into a too-good-to-be-true internet tale: it said that PepsiCo was about to start selling — or, depending on where you read it, maybe they’d already started selling? — something called Lady Doritos. The internet then did what it does best, accusing Nooyi of sexism and general idiocy. This led PepsiCo to issue a statement: “The reporting on a specific Doritos product for female consumers is inaccurate. We already have Doritos for women — they’re called Doritos.”... [it's] possible a male C.E.O. wouldn’t have even dared talk about the difference between how men and women eat chips. Looking beyond the momentary internet spasm, it’s worth pointing out that a key argument for having women in leadership has been so that they can do exactly what Indra Nooyi did: take into account the perspective of the women who use her company’s products. Maybe that’s true, but in this case, suggesting that women shouldn’t, or don’t want, to crunch their chips as loudly as men? — well, you get the feeling that the parable of the Lady Doritos will be a business-school case study for decades to come...
SHURCHKOV: Some countries like the Scandinavian countries, for example, they’ve actually instituted quotas for a certain ratio of women represented on boards of companies, for example. It’s interesting, because when you look at the effects of these policies, we find that at least in the short term, forcing women into these leadership roles does actually backfire a little bit, because it’s hard to find enough experienced women at that level to fill those positions. And then once you start to fill the positions with women who are less experienced those companies actually suffer in the short term, in terms of revenues and profits"
Yet pro-diversity research uses the same methodology as the Times to proclaim that diversity is good for business, and almost no one complains
If diversity is so good for business, appointing women when companies are doing badly should be a good idea
Some would point to sexism for the fact that if woman CEOs fail, it's seen as a stain on all women. Yet, since woman CEOs are celebrated as representing all women (e.g. they're celebrated just for being women) this is just the corollary of that - you can't have it both ways

Extra: Richard Branson Full Interview - Freakonomics Freakonomics - "let’s just look at this business of forcing people to come to an office. First of all, you’ve got maybe an hour or an hour and a half of travel time in the morning, another hour and a half of travel time in the evening. And, you know, when you’re at the office, it’s important that you say hello to everybody and that you’re friendly with everybody, so you use up another hour or two, you know, socializing with people. Then, because you’re not at home, you need to communicate with your family. So you spend another bit of time communicating with your family. And so the day carries on and you might get a couple hours of work done"

Extra: David Rubenstein Full Interview - Freakonomics Freakonomics - "private equity... we are providing a social service, and that social service is making companies more efficient, but more importantly than that, perhaps, the bulk of our investors are public pension funds. So they are policemen, firemen, teachers, and so forth – they are the largest investors through the various CalPERS of the world, or New York Commons of the world. And so we think that we’re doing good things, not only by making companies more efficient, but the real beneficiaries – the people getting 80 percent of the profit – very often are public pension funds...
One time we looked at a deal in an industry that you would think would be okay, which is to do video into hotel rooms. You know, it’s a nice business. But when you analyze it, it’s about 98 percent pornographic...
If you mention sex sometimes the students who are probably falling asleep during my speech would wake up. And sure enough, many people paid attention to that. In fact more people remembered that comment than anything else I said at that speech...
In private equity, on average, obviously there's some exceptions, probably 90 percent of buyouts will make money, something like that. And in venture capital, probably 90 percent of the deals will not make money...
When I was younger, a lot of my friends were very good athletes, and they became all-American athletes, particularly in lacrosse – I’m from Baltimore, lacrosse is a big sport. Now, they have artificial knees, they have artificial hips. I didn’t wear my body out. And so now, when I play tennis against these former all-Americans, I can run them off the court, because my body is still intact. So that’s one of the great pleasures of my athletic life."

Here’s Why All Your Projects Are Always Late — and What to Do About It - Freakonomics Freakonomics - "With the revolution in digital communication has come a blizzard of notifications, alerts, messages, and more. While there are obvious upsides to the speed and magnitude of this communication, there are also costs: information overload is thought to decrease U.S. productivity by at least $1 trillion a year."

Extra: Satya Nadella Full Interview - Freakonomics Freakonomics - "the more senior you are the more careful you need to be in setting up meetings... When I set up a review, it turns out that people will do at least five reviews before they show up to me because that’s kind of how it goes, right? They review with their manager or their manager will review with their manager. So depending on the topic and the matrix organization, it could become an exponential growth thing"

How to Train Your Dragon Child - Freakonomics Freakonomics - "NYE: So birth rates are plunging from the early 60’s to the mid-80’s in all these countries in East Asia. Amid this plunging birth rate — typical years are going down minus 2, minus 3 percent — the Dragon year saw, in Taiwan in ’76, a 15.5 percent spike. Singapore’s Chinese population saw an 8 percent spike. Malaysia’s Chinese population saw a 10 percent spike... You saw a Dragon-year birth effect in all East Asian countries or ethnic Chinese areas, except China...
LI: And one of the things they try to stay away from, or try to eradicate, is the old China... Mao Zedong stood at Tiananmen Square and said, “Now we have a new China.” So that means saying goodbye to the old China. Because that was understood, or was perceived, as old, backwards, not able to survive in the 20th century... you’ve vaguely heard, okay, if a girl was born the Year of the Goat, she would have trouble marrying. So what’s wrong with a goat? And my parents are just like, “Don’t even ask.” Because they’re afraid of, you know, being identified as a counter-revolutionary, and believing the old system...
GOODKIND: It’s really a new tradition, actually, to try to time births in the Dragon year... one factor obviously is the decline in fertility rates over time. When couples are having five, six, or seven children and they’re not using contraception, then the importance of timing a birth in or out of a zodiac year might be less relevant or maybe not easy to do. But these days, when people are having just one or two children, and a reproductive lifespan might be 35 years, there’s plenty of time there to play with. People have greater control over their fertility through contraception...
Goodkind suggests that this Chinese diaspora didn’t like how China itself was ditching so many traditional practices... being a minority immigrant creates an even stronger incentive to preserve your own cultural traditions. He was able to test this notion empirically, in Malaysia...
One study found worse health outcomes for newborns in Malaysia during Dragon years, presumably due to hospital crowding. Another study found that Chinese Dragon kids born in Singapore went on to earn less than non-Dragons, perhaps due to a more crowded labor market...
NYE: We see that Asian-American Dragons have roughly a third more year of education. We’re talking three to four months more of education. If you only look at immigrants now — so you’re only comparing Asian-American Dragon immigrants to Asian-American non-Dragon immigrants, the difference increases to nearly half a year. That is a huge effect...
In a famous study by the psychologist Robert Rosenthal, school teachers were told that their students were “gifted” even though they weren’t; yet somehow, by the end of the term, those students did outperform their peers"

Extra: Jack Welch Full Interview - Freakonomics Freakonomics - "WELCH: “radical candor” is not cruel. The kindest thing you can do to somebody: tell them where they stand early in their careers, so they know they can adjust. And they can change or they can move on. They can be somewhere where they fit...
When we have to lay somebody off, it’s the manager’s responsibility in many ways, not the person — they hired them. They’re responsible for developing them. I have a phrase: love them on the way out — I teach this to my school — love ’em on the way out the way you love them on the way in. And I’ll tell you another one: a severance dollar is the cheapest dollar you’ll ever spend... you’ll be perceived as fair. Maybe not loved, initially, but people will come to respect you. That’s why I have an army of friends. Many people who I let go are some of my closest friends...
The Washington Post ran it so I can say it again. I give [Trump] a D- on management practices. And I give him an A+ on policies. Now the Washington Post only ran that I gave him a D-...
Banking, it’s all about bonuses. How much money I make, it isn’t even an absolute number. It’s relative. If Joe makes more than Bill, no matter what happens, Bill’s mad...
I had plenty of money in the first three years I was C.E.O., the next 17 was spent making other people rich. I mean it’s a turn-on. I used to call guys in my office and give them a million bucks. You realize how good that feels?"