BLOOM: You look at the data, and there’s 10 different recipes for success.
Nicholas Bloom, an economist at Stanford, has been studying leadership for years.
BLOOM: No one could really give us a straight answer on what defined a good or a bad leader. Sure, there are some people better than others. But it’s damn hard to tell what it is.
We’ve been spending our time lately interviewing the C.E.O.s of companies like Microsoft and PepsiCo and Facebook. You’d think there’d be some sort of a template for what makes a successful C.E.O., some set of common characteristics. But, as Nicholas Bloom and others have told us, the data tell a different story. It’s very hard to pin down just what produces, or predicts, or even indicates a good C.E.O. So today on Freakonomics Radio, in the absence of great statistical evidence, we’ll go the anthropological route and ask the question: how do you become a C.E.O.? We’ll track our C.E.O.s from their beginnings through their ascensions — including how they almost didn’t make it.
Jack WELCH: I expected I might get fired.
Carol BARTZ: He didn’t have the nerve to see me face to face. Because he knew I would probably have punched him out.
Ray DALIO: And then I had my ass kicked in enough times …
* * *
Of the C.E.O.s we’ve been interviewing, four of them got an M.B.A. from an elite school. Two have law degrees; one has a Ph.D. On the other end of the spectrum — one is a college dropout and one is a high-school dropout.
Richard BRANSON: I was 16 when I started off in business. So I was a virgin at business.
You may recognize that voice.
BRANSON: Yeah. My name is Richard Branson and what do I do? I do everything Virgin.
DUBNER: Now, your title — your official title, as far as I can tell, is “Founder, Virgin Group.” In addition to that, are you the C.E.O. of anything?
BRANSON: I used to be. But I’ve delegated pretty well all the C.E.O. roles.
DUBNER: You created your own path and just kept going and kept having ideas, kept trying. Failed, didn’t let it bother you, and so on. But from — the original — the magazine, Student magazine, which was a culture magazine, to record stores, record label, airlines, trains, mobile-phone company, etc., etc., etc. I don’t know who you might have looked to as a model for that.
BRANSON: First of all I never thought of myself as a businessperson or an entrepreneur. I just initially, just thought of myself as an editor and wanted to have a magazine to campaign against the Vietnamese War. But in order for the magazine to survive, I had to worry about printing and paper manufacturing and distribution and so on. And I sort of became an entrepreneur And my education was being in the real world and learning the art of survival.
David RUBENSTEIN: I am the only child of two parents who both dropped out of high school.
David Rubenstein is a co-founder of the Carlyle Group, one of the biggest private-equity firms in the world. Until recently, he was also its co-C.E.O. He went to Duke University on a scholarship, then law school at the University of Chicago. After a couple years in New York doing corporate law, he moved to Washington.
RUBENSTEIN: I worked for Ted Sorenson, who had written that great speech for John Kennedy. He helped me get a job, which ultimately led me to the Carter campaign. So at 27, I was the deputy domestic policy adviser for the President of the United States, a job I obviously wasn’t qualified for.
DUBNER: Now I’ve read that you stayed late at your job to make sure that your memos were on top of the President’s briefing pile.
RUBENSTEIN: It’s, for better or worse, completely true. I would take into the President’s private study my memos, and bypass the staff system, and put my memos on top. So when the President came in in the morning, he would read my memos first, because they were on top of the in-box. And that had the advantage of bypassing everybody else’s comments on my memos, which was a way of beating the system. It wouldn’t be something I would tell my three children it would be a good way to get ahead. But I would say sometimes you do things in life that in hindsight — with wisdom and gray hair — you realize probably don’t look so good.
BARTZ: I came from a dairy farm in Wisconsin. My mom died when I was eight, so I was very motivated always to do well. The good girl.
That’s Carol Bartz. She was C.E.O. of the software firm Autodesk for 14 years and, later, C.E.O. of Yahoo!
BARTZ: I actually was very fortunate to get a computer-science degree from the University of Wisconsin in 1971.
DUBNER: Good timing.
BARTZ: And I fell into a world that I just loved, and I could continue in that world for the next 40 years.
DUBNER: Talk for just a minute about how being a woman affected your career, if you can kind of measure that input.
BARTZ: First of all, it was easier in the beginning, because not many people had computer-science degrees. And so, they didn’t care if you were an orangutan. You could get a job because they didn’t understand what was going on, and they thought maybe you could help them. Unfortunately though, at that time I walked into a mess of typical bad men that you read about today. But I was a tough farm girl, so I didn’t let too much get in the way.
DUBNER: You mean bad in a sexually harassing kind of way or…
BARTZ: Oh absolutely. Oh, absolutely. Absolutely. I mean, when I was at 3M — the guys that I worked with called me Carl, because they didn’t want their wives to know they were traveling with a female. So, that of course wasn’t harassing me. It was just kind of an indicator of how the world was. And as time went on and I was able to move up, I was fortunate enough to have some very good mentors and leaders that believed in me. And I was ornery.
NADELLA: I think I’m a product of two amazingly unique American things.
That’s Satya Nadella, the C.E.O. of Microsoft.
NADELLA: The first is this technology that reached me where I was growing up that even made it possible for me to dream the dream, and then the enlightened American immigration policy, that we like to debate, but it allowed me to come here in the first place and live the dream. Only in America would a story like mine be possible.
DUBNER: In addition to you, the C.E.O.’s of Google, Adobe, MasterCard, and many other big American firms are Indian-American and often immigrants, like yourself. How do you account for that massive success?
NADELLA: Well, I mean, of those companies, other than Sundar at Google, we all went to the same high school, even. So I don’t know. Maybe it was the water but — it’s sort of one of those false positives that you can take too much out of. Each of us have had our own unique story and unique path. It’s, after all, a country with a billion people.
DUBNER: But a relatively low immigration rate.
NADELLA: That is correct. What you’re seeing here is that there was this tech boom — especially — starting in the early 90’s. There was a good supply of engineering graduates out of the country, and demand meets supply, and the enlightened immigration policy is what made it possible.
NOOYI: I think it’s because we are products of an Indian education system at the high school and the undergraduate level, which is all in English.
That’s Indra Nooyi, the C.E.O. of PepsiCo. She’s also Indian, and I’d asked her the same question.
NOOYI: All of us grew up with a family that basically valued education over anything else. And that’s what allowed us to come here and be successful too.
ZUCKERBERG: Yeah, my dad has a lot of fun stories about how he got me into technology.
That’s Mark Zuckerberg, founder and C.E.O. of Facebook.
ZUCKERBERG: He took a lot of pride in being the first dentist in the area who did digital X-rays instead of physical ones. I mean, he was just such a geek. But he was always saying, “Mark, don’t you think this is cool?” My sisters were happy enough to play the games that I programmed growing up. They prefer playing a snowball fight game, or some strategy game that I made, even if the graphics were terrible, and the game wasn’t that good. Because I was still learning how to program. I was 12 or 13. They’d prefer that to getting chased around the house with a Super Soaker.
You probably already know that Zuckerberg dropped out of Harvard.
ZUCKERBERG: 10 years ago I was just trying to help connect people at colleges and a few schools.
He’s probably the most accidental C.E.O. we spoke with.
ZUCKERBERG: Yeah, well, I never started this to build a company.
At 33, Zuckerberg is also the youngest C.E.O. we interviewed. The oldest, at 82, is Jack Welch, former longtime C.E.O. of General Electric.
WELCH: Treating everybody the same is ludicrous. And I don’t buy it.
Welch joined G.E. in 1960 with a Ph.D. in chemical engineering. It was a different era.
WELCH: Well let’s start with differentiation. I learned differentiation when I was 11 years old in the playground. And the other guys were 15 and 16. And what happens to the worst player? He’s picked last and he goes to right field. That’s differentiation. I mean that hasn’t changed in my mind from the day, that first day I went to the playground.
Welch spent his whole 40-year career with G.E., the last 20 as its C.E.O.
WELCH: It’s not cruel and Darwinian. A baseball team publishes every day the batting averages. And you don’t see the 180 hitter getting all the money, or all the raises. Athletics is the purest form of differentiation, because it’s public. Business is more subtle, and it’s more qualitative. So, the precision isn’t there to differentiate. Judgment is important. But you don’t win with a gang of mediocre players in business or in baseball.
WELCH: Do you want to be in the losers’ locker room, or the winners’ locker room? What’s more fun?
DUBNER: When you look back at your tenure at G.E., you had an awful lot of different issues — controversies, occasional crises, you had financial, you had environmental, you had some involving personnel.
DUBNER: Walk me through what felt at the time like the worst one and how you addressed it.
WELCH: Well, there, I blew up a factory.
DUBNER: Yeah, that was early on, right?
WELCH: Early on.
DUBNER: Tell the story about how your boss, or maybe it wasn’t your immediate boss —
WELCH: My immediate boss didn’t know me. He made sure he got away from me. And I blew the roof off the factory. Fortunately, no one was killed. And I was called down to New York to explain what happened by my boss’s boss’s boss. So, I met this guy really for the first time.
DUBNER: This guy named Charlie Reed, I believe?
WELCH: Yeah, yeah, right. Good for you. You did some homework.
DUBNER: All right. You’re expecting what from Charlie, now?
WELCH: I didn’t know him, so I didn’t know what to expect. But I expected I might get fired.
WELCH: I drove down in my Volkswagen from Pittsfield. I met Charlie, and all he did — it turns out he was a Ph.D. chemical engineer from M.I.T. He took me through the Socratic method. “Do you know why it happened. What would you do differently? Why did you do that? Why didn’t you do this?” And he was coaching me, and it was — couldn’t be nicer. And I learned from that. And never kick anybody when they’re down. Kick ‘em when they start to swell. But don’t kick somebody when they’re down. And Charlie did a hell of a job of coaching me through the error I made in blowing oxygen through benzene without enough grounding.
DUBNER: And you think that changed the way that you managed going forward?
DUBNER: That was almost 20 years before you took over.
WELCH: Yeah, but it changed my life forever.
From the outside, it’s tempting to assume that the path of a chief executive has been a straight line, a procession of victories small and large. That is rarely the case. Failure is not only common among the C.E.O. class but, to some degree, desirable. Nicholas Bloom again.
BLOOM: You need that experience of adversity. In Silicon Valley, there’s this old saying about — you actually love to fund people that have had one or two business failures, but three or more is pure carelessness.
DALIO: Oh, yeah. And then I had my ass kicked and enough times and then I, yeah, I remember the moment. In late 1980, ‘81.
That’s Ray Dalio. At the time, he was running a small hedge fund, called Bridgewater Associates.
DALIO: I had calculated that American banks had lent to foreign countries a lot more money than those countries are going to be able to pay back.
Dalio’s calculation turned out to be right. This brought him a lot of attention from Wall Street; he was asked to testify before Congress. Dalio told anyone who would listen that the looming debt crisis would inevitably lead to a stock-market crash.
DALIO: I was so wrong, I had to let clients go. I lost money. I got so broke that I had to borrow $4,000 from my dad. And then letting go people who were like extended family — it was literally down to me. That was a very painful experience. But it was one of the best experiences that happened in my life because it changed my perspective from thinking, “I’m right,” to asking myself, “How do I know I’m right?”
Dalio rebuilt Bridgewater from scratch.
DALIO: And that began the whole process of trying to find the smartest people I could find, who disagree with me, and be curious about what they think. To create a culture in which there is independent thinking.
Bridgewater would become famous for using algorithms to make decisions, and for practicing what Dalio called radical honesty and radical transparency.
DALIO: The senior partners said that “you’re making people uncomfortable, you’re demoralizing them with your straightforwardness.”
But it worked. Bridgewater is now the biggest hedge fund in the world: 1,500 employees, roughly $160 billion under management. Dalio, who recently stepped down as co-C.E.O., has a net worth of around $17 billion. He traces his success back to having weathered, and learned from, that early failure.
DALIO: We have a challenge of being able to deal with our own imperfections and our own weaknesses and our own being wrong. And our society reinforces that. It’s reinforced in schools, “Okay, you got the grades right, you’re right are you right are you right are you right.” It doesn’t reinforce the notion of failure, and learning from failures, and that whole experience.
RUBENSTEIN: Well, we’ve made plenty of mistakes, as everybody in this business has.
David Rubenstein again, from the Carlyle Group.
RUBENSTEIN: And anybody [who] tells you they haven’t made a mistake probably really isn’t in the business, or isn’t being honest.
Carlyle is a private-equity firm — buying established companies, sometimes replacing their C.E.O.s, and ultimately selling them off. This is not to be confused with a venture-capital firm, which generally funds start-ups.
RUBENSTEIN: I don’t think I have the skill set in venture capital. I passed on Facebook when Mark Zuckerberg was in college and I had a chance to be an early owner of Amazon and effectively turned it down.
Still, Rubenstein is among the most experienced people on the planet when it comes to observing C.E.Os. Carlyle has acquired or invested in nearly 600 companies — in aerospace, healthcare, energy, media, financial services, you name it. So, Rubenstein has formed some rules of thumb.
RUBENSTEIN: Running companies is different than getting them off the ground. I think it’s much harder to get them off the ground. But generally, the companies that are going to make it, with some exceptions, are the companies that have a C.E.O. founder who has driven the company for the first couple of years, and really driven it to success. And then you bring in a C.E.O. who’s better at managing a more mature company than somebody who’s getting it off the ground. Some of the greatest managers of companies in the world are not great entrepreneurs, and some great entrepreneurs are not really good at managing companies.
In the latter category, Travis Kalanick of Uber comes to mind. Great entrepreneur. As a manager? Much less great — which is why Kalanick is no longer the C.E.O. of Uber. As for successful C.E.O.s who weren’t entrepreneurs — there’s Lou Gerstner, who ran I.B.M. and R.J.R. Nabisco; Alan Mulally, who ran Ford and, before that, a division of Boeing. But what about the third group: company founders who go on to successfully run their firm?
RUBENSTEIN: It’s a rare person, like Bill Gates, who was an entrepreneur and also was a very effective C.E.O. for many, many years.
DUBNER: The high-profile nature of those relatively few excellent founder C.E.O.s — you mentioned Bill Gates, you could say Mark Zuckerberg at this point, you could say Jeff Bezos at this point, you can say Steve Jobs while he was alive — do you think they give a kind of skewed, anomalous view of what the C.E.O. should be? In other words, it should be the founder, or at least it would be best if it were the founder?
RUBENSTEIN: Well clearly, they get all the attention and so it does give people something to aspire to. But probably most companies five years into the formation of the company are not being run by the person who conceived the company might have started it. It’s just a different skill set, and very few people have the skill set that Jeff Bezos exhibited or Bill Gates exhibited. It just usually doesn’t happen.
In the case of Facebook and Mark Zuckerberg, it wasn’t at all clear that the founder would make it as the C.E.O.
SONNENFELD: I thought he showed an incredible audacity to not learn and listen as a leader.
That’s Jeff Sonnenfeld, a leadership scholar at Yale.
SONNENFELD: Oh my gosh, has he changed. And he’s had a great board, great mentors, and also he’s just been a great learner. He has been remarkably different now as a leader than he was when he first became C.E.O.
ZUCKERBERG: I actually think the most important thing is what decisions and what processes on a day-to-day basis you choose to let people have the freedom to do, and just not get involved with.
And that’s Zuckerberg.
ZUCKERBERG: A huge part of how Facebook works is giving a large amount of freedom to our engineers at the company, and to people who use the product to make with it what they will. And trusting people to do that, rather than ——
DUBNER: Was that hard for you to get to, or … ?
ZUCKERBERG: I think it’s hard every day. Because when you’re running something, you, of course, have the ability to make as many of the decisions as you would like. The real art is not — not when you know that you have someone who is a superstar, who is going to make great decisions, but deciding to let people do things that you disagree with, because on principle, and it’s just going to free up more creativity and people will feel like there’s more potential to try different things in the future that may be better, if you let them go do those things, even if you disagree with them.
BRANSON: Too many young entrepreneurs want to cling on to everything. And they’re not — they’re not good delegators.
Richard Branson again, the founder of Virgin.
BRANSON: If I’m ever giving a talk to a group of young business people, I will tell them: go and take a week out to find somebody as good or better than yourself.
DUBNER: I know that once, when you were asked how involved you are in the mechanics of your businesses, you said, “I don’t understand these things completely,” and you said, “I’ve never been able to know the difference between net and gross.” I’m guessing you were exaggerating at least a little bit, or no?
BRANSON: Well, I’m — I’m quite badly dyslexic and — and it was on my fiftieth birthday that I was having a meeting with a group of executives. And I asked the question, “Is that good news or bad news?” when some figures were given to me. And one of the executives took me outside of the room and he had a, some coloring pencils and he had a blank sheet of paper. He colored in this piece of paper blue, and then he put a net — a fishing net — amongst it. He put little fish in the fishing net. And he said “Richard, I don’t think you know the difference between net and gross, and let me simplify it for you. The fish in the net are your profit. And the — all the fish that are not in the net are your — are your gross turnover.” And hey, presto, I got it! And ever since then, I’ve been very swankily saying “net profit” and “gross turnover.”
* * *
Where do C.E.O.s come from? First of all, keep in mind that small firms vastly outnumber large ones.
BLOOM: 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, the 50th percentile, has three employees and the most common company has one.
But let’s say we are talking about a big company. Maybe it’s a startup — like Facebook or Uber — that shot into the stratosphere. Maybe it’s a old-timer like General Electric or PepsiCo. Where does the ideal C.E.O. come from? Is it an insider who knows the culture, who’s got institutional memory? Or an outsider with fresh eyes and instincts? To what degree, and on which dimensions, should the incoming C.E.O. resemble the outgoing one? Let’s start this conversation with Jack Welch, who became C.E.O. of G.E. after 20 years at the company.
DUBNER: You were ultimately appointed C.E.O. by Reg Jones. You were very different from him. He was kind of buttoned-down, formal, classically trained in a way and British. And you were more scrappy, Boston area, said what you thought, didn’t necessarily care that much how people received it. It was a fascinating hand-off from him to you, and it’s amazing that he saw in you, what others may not have seen. I’m curious: you were there a long time before that day. I wonder how much you were motivated to stay, and rise, by your desire to change the way the company was run, because you and he both acknowledged that at the time you took over, G.E. needed a lot of change.
WELCH: Yeah. I had an enormous thirst to get my hands on it. And obviously I was on the sidelines thinking what I would do if I got it. And when I got it, I did it.
DUBNER: You make it sound pretty easy.
WELCH: Well, frankly it’s a lot easier to come up in a company and see its foibles from the bottom to the middle, than be brought in as a hero at the top and know nothing of the infrastructure or the vibes of the place.
Welch eliminated many of G.E.’s business units and he let go so many employees that he came to be known as Neutron Jack. Doing so, he argued, was how G.E. was going to win; and it didn’t help any employee to pretend they were better than they were.
WELCH: It’s a sin if people come to work not knowing where they stand. Everybody who works for you must know where they stand, what their boss thinks about them, what the company thinks about them. This idea of false kindness is pure nonsense. Pure nonsense.
Jack Welch was not everyone’s favorite flavor. Some said he was abrasive. That his cost-cutting was inhumane. Others said he got lucky, turning G.E. into more of a finance company during what turned out to be a huge stock-market run-up. Whatever the case, his tenure as C.E.O., from a performance perspective, was extraordinary.
WELCH: We were doing $26 billion in sales, with $1.4 billion of profit. And we had 420,000 employees. Okay? That was the early 1980s. Twenty years later, we were doing $150 billion in sales, plus or minus, and we we’re making $15 billion. And we had 300,000 employees, instead of 420. So, either we were fat before, and we needed to move. Or something’s different.
It’s a sample set of exactly one but: Jack Welch is evidence that it’s possible for an insider to take over and kick-start a legacy firm. But what if G.E. had brought in an outsider — maybe they would have done even better? For a firm in need of big change, you’d think that an external C.E.O. might have all sorts of advantages, wouldn’t you?
SONNENFELD: The truth is just the opposite. The research slightly favors the objective internal person to make the big changes.
That, again, is Jeff Sonnenfeld from Yale.
SONNENFELD: They know where the problems are, where the bodies are buried. They also know where the opportunities are. An objective, smart, honest, intelligent insider is generally a much better pick than somebody from the outside.
Here are some numbers to back up what Sonnenfeld’s saying. 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.
SONNENFELD: What has happened in this oh-so-troubling governance days of this new millennia, is that insiders are often disparaged way too quickly, as boards have taken on with a messianic zeal, a belief that whoever our savior is for the next C.E.O., it ought to be somebody from the outside. Because hey, if this company is not performing perfectly, we can’t take one of these knuckle-dragging drones from within to save us. With the outside, you have no idea if that person has gotten a lot of credit because of a biased relationship with a search firm, or maybe that person had been part of a successful operation in a strong performing company, and is benefiting from the afterglow of other people’s work. Whereas in the inside, the person — you know when they’ve tripped. Often we give too much attention to mistakes from an insider. But an insider, we can judge how they’ve learned, how they’ve come back from setbacks and mistakes, and an insider tends to be a much better choice.
In 2014, Microsoft, one of the biggest companies in the world, found itself searching for a C.E.O. Steve Ballmer had announced he was stepping down. He’d been at Microsoft forever – the 30th employee hired – and he was just its second C.E.O., after co-founder Bill Gates. A lot of names were mentioned as Microsoft searched for its next C.E.O. Many of them were high-profile outsiders. One name rarely mentioned was Satya Nadella. He was a relatively low-profile insider, a computer scientist who’d been at the firm since 1992. And yet Nadella was the ultimate choice.
DUBNER: You make no secret of it, that a lot of people were hoping for an outsider to be appointed C.E.O. of Microsoft, but you’re a lifer. I gather there wasn’t a lot of enthusiasm internally when you were named.
NADELLA: As you said, I’m a consummate insider, but the one thing that I’ve tried to do, being someone who has grown up in Microsoft, is have as an objective, outside-in view.
SONNENFELD: He was a very humble guy.
That, again, is C.E.O. watcher Jeff Sonnenfeld.
SONNENFELD : He was never going for the bright lights and trumpets. There was no grandiosity about him. And he was quietly, but prophetically, building up the cloud business, that wasn’t Bill Gates’s or Steve Ballmer’s front burner topic. And yet he saw what was coming. And as C.E.O., one of the things he’s done is, by increasing market cap, since he’s been in there in just — what, three years? — just over three years — by $250 billion.
That $250 billion figure was accurate when we spoke with Sonnenfeld. But that was a few months back. As of today, Microsoft’s market cap has increased by more than four-hundred billion dollars since Nadella took over, its share price more than doubling.
SONNENFELD: But that tells only a small part of the story, because he did come into a culture that had become very bureaucratic. It had become possessed by very strong turf issues. And you might say, well how did he do it? Just talking with insiders in there is, there’s an absolute genuine collaborative decision-making on anything large or small, that there — it isn’t driven by fiefdoms, nothing by imperial decree. There’s an accessibility and a friendliness, almost a playfulness, that he’s brought in to a company, where you just wouldn’t have thought it was possible, at this life stage, to do it. What he did to revive the culture is — is really — is incredible.
Nadella himself attributes his management success to one word:
He wasn’t always so empathic.
NADELLA: I always ask myself — at whatever, twenty-five when I was interviewing, and somebody says, “What will you do if you see a baby on the street crying after having fallen down?” I answered, thinking this is some trick question. Maybe there is some algorithm that I’m missing, and said “I’ll call 911” only to have that manager, get up, and walk me out of the room saying, “That’s the absolute bullshit answer.” And if you see a baby falling down, you pick them up and hug them. And I was devastated because I remember thinking about it and I said, “How could I not get that?”
By Nadella’s own admission, it took an even more dramatic event for him to “get it.”
NADELLA: On the 13th of August 1996 at 11:29, all — our life changed.
His wife, Anu, an architect, had just given birth to their first child, Zain. He had a severe case of cerebral palsy.
NADELLA It took me multiple years to even understand what had happened because in some sense I was more about, “Why did this happen to us? What happened to me?” And it’s only by observing my wife really step up, give up her career, and do all things she was doing to care for Zain, that’s when I realized nothing happened to me. In fact, really, something has happened to my son, and it’s time for me to step up and see life through his eyes, and do what I should do as a parent and as a father. That’s, perhaps, the biggest lesson for me around empathy. And it’s only developed through your life’s experience. It’s not something that’s really endowed on you. But as long as — with every passing year with, perhaps, every passing mistake you make, you develop more of a sense of being able to see life through other people’s eyes — is going to make you a more effective parent, more effective colleague, and a more effective partner.
You can see why the Microsoft board was impressed enough with Nadella to make him C.E.O., despite being a relatively low-profile insider. And that choice, so far at least, has paid off. But the fact is that many, many C.E.O. searches look for a very — let’s say a very “typical” sort of candidate. I’d talked about this with the Stanford economist Nicholas Bloom.
BLOOM: By the time you get to people with basically great education, charming individuals, some kind of prior experience — they’re all in the frame for leadership.
DUBNER: It sounds as though you’re raising, then, a central problem or challenge at least which is, if everybody’s always looking for C.E.O.s who fit the C.E.O. mold, then you’re going to continue recruiting and installing a bunch of well-educated white men from middle- or upper-middle-class backgrounds — which is, a) potentially very discriminatory but, b) potentially idiotic because you’re reducing your pool of potentially excellent people. So, how do you deal with that?
BLOOM: Imagine if you are making a new type of soup, and you decided to invent tomato soup. There’s already a 100 types of tomato soup out there. But if instead you went for something different: hedgehog-in-chili soup. Most people would think it’s horrible. They’d never go near it. But, one in 100 consumers think that’s kind of cool and try it out, and you’d have a market. Much as it is with C.E.O.s. You actually really want diversity because you actually want to be different from your competitors and that enables you to have the edge. It enables you to innovate. Sure, there’s going to be a lot of white men C.E.O.s but given there’s a lot of white men C.E.O.s out there, actually there’d be a lot of payoff to having something different because you have a different angle, and that’s where you can make money in business.
PAO: Are we actually going to find that people are starting to hire people with different views, and different backgrounds, and different experiences, who we really believe are going to change the system and not just perpetuate it with different players?
That’s Ellen Pao.
PAO: I am the Chief Diversity and Inclusion Officer at the Kapor Center, and a venture partner at Kapor Capital. And I’m also C.E.O. and co-founder of Project Include, a non-profit oriented towards giving everyone a fair chance to succeed in tech.
Pao herself had a brief and stormy tenure as C.E.O. — interim C.E.O., technically — at Reddit. Some of the changes she made deeply upset the Reddit community.
PAO: At the end of the day, the board didn’t have the stomach for it. And they told me that they wanted me to reach either 350 million or 500 million users by the end of the year. And I just said, “No company has done that. So, I can’t commit to doing that.” And that ended up being the reason why they asked me to leave.
From her experience within firms and as a venture capitalist, Pao has found that the C.E.O. playing field is quite unlevel. Tilted, especially, against women.
PAO: There’s a perception that if you are pregnant, that you’re no longer as good of a founder, or as committed of a C.E.O And we’ve seen story after story — I don’t think there’s any scientific research about it, but — of C.E.O.s hiding their pregnancies, because they don’t want to be perceived as less of an employee, or less of a leader. And I had a coworker who tried to hide her pregnancy for about five months.
We’ll look more closely at gender and leadership in an upcoming episode about what’s called the glass cliff. It’ll feature Carol Bartz, the former Autodesk and Yahoo! C.E.O. we heard from earlier.
BARTZ: The guys that I worked with called me Carl, because they didn’t want their wives to know they were traveling with a female.
When Bartz took over Yahoo!, in 2009, the company was in a lot of trouble. She only lasted two-and-a-half years.
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 punch him out.
DUBNER: And was he right?
BARTZ: Might be right. I don’t know.
Why did Carol Bartz, with such an excellent track record as C.E.O. of Autodesk, fail as C.E.O at Yahoo!? It is because she was an outsider? Was it a strategic issue? A personality issue? Maybe a timing issue? Or: maybe, Carol Bartz’s failure had nothing to do with Carol Bartz. Maybe Yahoo! was just a company being blown sideways in a tech tornado where display ads were cratering and Google was killing everybody else in search. Bartz’s successors didn’t have a very good time either. Yahoo! was at one point the world’s most popular web destination, with a market cap of more than $110 billion. Last year, it was sold, to Verizon, for four-and-a-half billion dollars.
Maybe we should be cautious about ascribing too much blame, or credit, to a given C.E.O. There are a lot of factors to consider in any firm’s success or failure. And, as we’ve learned today, there’s a huge variance in the backgrounds and styles and skills of different C.E.O.s. There seems to be no secret sauce whatsoever. Unless maybe it’s luck? That said, we also learned that when it’s time to pick a C.E.O., the numbers do seem to suggest that the best bet is a stable and experienced insider.
NOOYI: Even the day before they told me that I was going to be C.E.O., I didn’t think that I was going to be C.E.O. There wasn’t a plan to become C.E.O.. The plan was to just keep doing a very, very good job, and focus on running the job that I had, and making sure the company was in a good place. One thing just led to another.
Indra Nooyi of PepsiCo is easily the most experienced, stable insider we’ve run across in our reporting on C.E.O.s.
SONNENFELD: At one point she was chief administrative officer, chief financial officer, and chief operating officer basically all at once and then took on the tasks over Christmas at one point to become also chief technology officer. Indra is an unbelievably brilliant person.
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Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Max Miller. Our staff also includes Alison Hockenberry, Merritt Jacob, Greg Rosalsky, Stephanie Tam, Vera Carothers, Harry Huggins and Brian Gutierrez; the music throughout the episode was composed by Luis Guerra. Sound design by David Herman, with help from Dan Dzula. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts. You can also find us on Twitter, Facebook, or via email at email@example.com.
- Carol Bartz, former C.E.O. of Yahoo!
- Nicholas Bloom, professor of economics at Stanford
- Richard Branson, founder of the Virgin Group
- Ray Dalio, founder of Bridgewater Associates
- Satya Nadella, C.E.O. of Microsoft
- Indra Nooyi, C.E.O. of PepsiCo
- Ellen Pao, former interim C.E.O. of Reddit
- David Rubenstein, co-founder of the Carlyle Group
- Jeff Sonnenfeld, Senior Associate Dean at the Yale School of Management
- Jack Welch, former C.E.O. of General Electric
- Mark Zuckerberg, C.E.O. of Facebook
- “Outside and Inside Hired CEOs: A Performance Surprise,” James S. Ang and Gregory Leo Nagel (2009).
- “In With the New – Compensation of Newly Hired Chief Executive Officers,” Xiao Bi (2015).
“Bridgewater’s Ray Dalio Spreads His Gospel of ‘Radical Transparency,'” Alexandra Stevenson and Matthew Goldstein, The New York Times, (September 8, 2017).
“CEO Succession 2000-2009: A Decade of Convergence and Compression,” Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, strategy + business, (May 25, 2010).
“Succession Planning: What the Research Says,” Eben Harrell, Harvard Business Review, (December 2016).
“This One School In Hyderabad Has Produced The CEOs Of Microsoft, Adobe, Mastercard And Wipro,” OfficeChai, (September 27, 2017).