Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
1422162672
William Thorndike
Notes
CEOs have five essential choices for deploying capital
- investing in existing operations
- acquiring other businesses
- issuing dividends
- paying down debt
- repurchasing stock
and three alternatives for raising it
- tapping internal cash flow
- issuing debt
- raising equity
…a very select group of men and women who understood, among other things, that:
- Capital allocation is a CEO’s most important job
- What counts in the long run is the increase in per share value, not overall growth or size
- Cash flow, not reported earnings, is what determines longterm value
- Decentralized organizations release entrepreneurial energy and keep both costs and “rancor” down
- Independent thinking is essential to long-term success, and interactions with outside advisers (Wall Street, the press, etc.) can be distracting and time-consuming
- Sometimes the best investment opportunity is your own stock.
- With acquisitions, patience is a virtue . . . as is occasional boldness
When their stock was cheap, they bought it (often in large quantities), and when it was expensive, they used it to buy other companies or to raise inexpensive capital to fund future growth.
“The goal is not to have the longest train, but to arrive at the station first using the least fuel.”
Burke was responsible for daily management of operations, and Murphy for acquisitions, capital allocation, and occasional interaction with Wall Street. Burke believed his “job was to create the free cash flow and Murphy’s was to spend it.”
“hire the best people you can and leave them alone.”…“The system in place corrupts you with so much autonomy and authority that you can’t imagine leaving.”
Operating managers were held responsible—in Chabraja’s words, “severely accountable” — for hitting their budgets and were left alone if they did so. System managers who missed monthly budgets were frequently visited by the itinerant COO, and underperformers were quickly weeded out.
Malone abhorred taxes; they offended his libertarian sensibilities, and he applied his engineering mind-set to the problem of minimizing the “leakage” from taxes.
His contrarian insight was that companies with low capital needs and the ability to raise prices were actually best positioned to resist inflation’s corrosive effects.
Outsiders:
- disdained dividends
- made disciplined (occasionally large) acquisitions
- used leverage selectively
- bought back a lot of stock
- minimized taxes
- ran decentralized organizations
- focused on cash flow over reported net income