The unaligned interests

Mark Cuban writes about how the interests of CEOs and shareholders are very much not in alignment:

There are two types of CEOs, those who are the founders or co-founders of their companies, and those who were hired to do the job. The difference is important because those involved with the founding of their companies not only have a different personal connection with the company and its employees, but more importantly, since they founded the company, they most likely already own a lot of stock.  The motivation of a founding CEO will be money, but there will be other considerations. Sometimes.

Then there are those hired to be CEOs.  What are the goals of hired CEOs ?. Plain and simple, its to get paid. To make as big a chunk of money as they possibly can in the shortest amount of time.  No one in their right mind is going to take on a job with the amount of pressure, stress and away from family time that comes with being the CEO of a public company without getting paid incredible sums of money.

There is an interesting kinship between hired CEOs and professional athletes. Both realize that there are limited opportunities to make the big financial score, and if they dont make it this time through, they may never get the opportunity again.

There isnt a CEO in America with the opportunity to take  the helm of a public corporation that didnt run the numbers in their head and play “what if”. What if the stock went to this price ? What if the stock went to that price?  Then based on the total number they needed to get to the networth they always dreamed of, and  using the CEO pay totals of men or women who had already  done the same  thing to get their current jobs as comps, they  negotiated their deal from there.  Any CEO in this position who tells you otherwise is lying.

Which is why the concept of CEO and shareholders interest being in alignment because they both own stock is a big lie.  The CEO wants to hit the homerun of their career when they take the job, the shareholder just doesnt want to strike out with their life savings.

I’ve written before that I don’t buy the argument that CEOs need to be paid vast sums of money because that’s the market price for great talent. I think a lot of the CEOs I’ve met like the power as much as the money (I’m assuming they’ll get paid what to any normal person is boatloads of money, just not obscene amounts of money). Cuban seems to think the obscene amounts are a necessary enducement for the tsouris of the job. I’m curious to see what he proposes to do about it in the subsequent post he promises.

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