I’m Tired of Being In Charge

Many times we, as business students, have thought about the related stress and demands that we could face if we ever had to lead our own organization. Managing the various divisions across the organization to make sure we are reaching the expected results, that the company culture is positive and that employees are actually performing what we want from them.  Let’s face it, the very thought of it may be exhilarating, but it can also be exhausting and may give us an unexpected set of grey hairs.

The article entitled, “When the CEO Burns Out” from the Wall Street Journal discusses the particular case of James Green, CEO of Giant Realm, an online advertising network.  While the article not only makes mention of the high amounts of stress and mounted expectations that this CEO faces, it goes further by stating how this trend is on the rise in the US corporate environment in general.

The article mentions a study carried out by the Harvard Medical School, which clearly illustrates the new trend among CEOs, the study showed that 96% of senior leaders reported feeling burnt out. This new trend is something that needs to be addressed and solved as soon as possible. It will not only damage the long-term goals of the company but will also decrease the CEO’s management quality, as they strive to reach the numerous objectives set for them.

This article does a good job of describing this recent trend, as well as the medical reasons and preventions that executives can take, yet it fails to mention non-health related actions that companies should inspire their CEOs to do. These actions include an effective and fair delegation system, which many times is a hard decision for executives to make, since they feel they will not be needed in the future, or because they are decreasing their workload. Executives should also be compensated and treated fairly even if they sometimes do not achieve the desired results. As long as these CEOs have the input of the shareholders and receive positive criticism, their performance can still improve in the future and without taking a toll on their mental and physical health.

Companies need to realize of this new and more recurring trend and take preemptive measures to help CEOs not only perform their job successfully but also keep them motivated and enthusiastic about their job and the company itself. Often, when CEOs experience burnout they are later instructed to take a leave of absence to recover from stress. During these absences companies have seen not only their operations lag and/or become less effective, but also a decrease in stock value. This last issue may sometimes make the pressures that were put on the CEO previously inconsequential since the company’s value took a step back during the CEO’s absence. In conclusion, companies should look for results but they should do so responsibly while also making sure that their leader is healthy and motivated to improve on previous performances and improve their managing quality.

What do you think companies should do to avoid these burnouts?

Source: http://online.wsj.com/article/SB10001424127887323687604578469124008524696.html

The Importance of Risk Management – The 2008 Financial Crisis


The current economic crisis has a renewed interest in examining the situation that lead up to the Great Depression of the 1930s. Firms like Lehman Brothers and Bear Stearns were formulated in the 19th century or the earlier part of the 20th century and survived the shock of the Great Depression. It is viewed as the largest economic catastrophe in the history of our financial system.  Yet, the 2008 global financial crisis and recession caused both of them to collapse.

We need to take a closer look at why they did fail in relationship to the structure of the company. The question that prevails is whether risk is better controlled under a partnership or a public corporation system?



Investopedia defines partnership as “a business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.  Partnership doesn’t always mean two people. There are many large partnerships who have thousands of partners.” (LINK #1)  A partnership structure where you are betting your own money is a better one at focusing on risk management.  After researching various investment banks’ “business codes” or “risk management strategies”, I found Goldman Sachs to have the best business plan. (LINK #2)   One of the reasons why Goldman has always been better at risk management and continued to do well throughout the 2008 meltdown is because as a partnership it really mattered to have good risk management.  This is because it was the partners’ money that was at risk.  Having your own money at risk is a very powerful motivator to make sure the risk and reward tradeoff is being made correctly.  This view develops a culture in a company where the risk managers have equal power to the risk takers.

From what has happened, this didn’t exist in many other public companies.  Even though Goldman changed into a publicly traded company, this culture of “it’s your money” stayed there to a fair extent.  This is reflected by the fact that Goldman’s employees collectively still own a significant portion of the stock. (LINK #3)  The same was true for Lehman Brothers and Bear Sterns employees.  They also owned a significant portion of the company’s stock.  No individual lost more money than Dick Fuld, CEO of Lehman Brothers.  Reports say his total compensation from 2000-2007 totaled anywhere from $310 to $485 million, 85% of which was in the company’s stock. (LINK #4)  Why was that economic incentive still not enough to make them be more careful?  This has to do with the culture of the firms and the focus on making sure that there is a much better balance between risk takers and risk managers.  Another thing Goldman does is it takes people who were traders and puts them on the risk management side. (LINK #5)  Any company that takes the attitude that risk management is a low level function and the traders are the kings is setting themselves up for a problem.  When you have good leadership at the top of your firm you will recognize the value of good risk management and their compensation will reflect that.  An example that combines both culture and leadership is Warren Buffet.  Warren Buffet has put everything that he owns into Berkshire Hathaway.  It is clear that his attitude of “the risk for my shareholders is the same as the risk for me” reflects the overall success of the company. (LINK #6)

In closing I believe that it is the CEO’s job to protect the shareholders by investing in good risk management.  The CEO’s who did not do this during 2008, for whatever reason, failed in their jobs.


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Who is running the company?

If you asked this question prior to 2006, the response would likely be the CEO. The Board of Directors does have oversight of the company, but they are the same group of people that elected that CEO. In recent years the investors are using an active investment and management strategies which is overshadowing CEOs and the board. In 2006 only 28 directors at public companies in the Russell 3000 Index did not receive a majority vote. In 2011, that number increased to 79.  According to Harvard Business School Professor Rakesh Khurana, “… investors are telling directors who should be the CEO and how management should run the company.”


As I read the articles on this material, it comes down to return. Investors, individual or companies, want to make a return. The return for their investment since 2008 has not met their expectations. It has prompted majority investors to take long hard look at the executive level.  New York hedge fund, Royal Capital Management sent the board of directors a letter directing them to oust former CEO Angela Braly. The letter said “ … financial forecasting process is manifestly dysfunctional, subordinates are openly (and rightly) critical of her performance, and a revolving door of senior management ensures these problems will persist.”  Royal also took steps to discuss this direction with Barrow, Hanley, Mewhinney & Strauss and T. Rowe Price. Although it is not unprecedented that investors push out a CEO, it is uncommon. It is more uncommon that investors collaborate before “imploring” the board to take action.


The other prevailing reason for more active investment strategies is that, control is the primary driver for the investment. Carl Icahn and Bill Ackman are known for their large investments and their investment comes with power and influence. Their role in the company goes beyond investment to authority over the management and crosses the line of who is actually running the company.


The shift of control has major implications on the company’s strategy. By investors selecting the CEO and/or board members, they are shaping the future direction of the company. It can be seen through competitive advantages, shareholder value and their decisions about what to do and what not to do. TPG-Axon’s Singh wrote in his letter to the SandRidge board of directors regarding their role,  “…in instances where we come to believe that management is acting in a manner that is destructive of value, we believe it is important to actively engage.” 


Shareholder value is maximized when the CEO and Board of Directors execute on the right strategy. Investors are now directing the directors on who should be running the company. It is a change in the way the CEO, directors and their investors interact.


QUESTION: If investors are more active in the management of the company, should they also be just as accountable as the CEO?  


Do you think it is within the right of the majority investors to collaborate and oust CEOs from their position? If so how much time does a CEO have to execute their strategy?