The CEO Problem

28 October 2016 | Business Thoughts

Big business has a big problem. They require CEOs to make important and sometimes complex decisions. And the decisions are ultimately made to maximize shareholder wealth and the revenue of the business.

At nearly any cost. And then the CEO gets a bonus.

Long term thinking is thereby discarded in favor of short term rewards.

In the long run, the company is very likely to run into issues as CEOs make questionable choices to positively impact their immediate wealth. To change this behaviour you could instead offer some small short-term rewards and big long-term rewards. If the company achieves X in 10 years and that can be traced back to your tenure then here is Y. This of course is a lot harder to measure and requires significant more effort into structuring and accounting for variables, but policies like these would foster a company with more foresight and place responsibility on future outcomes.

In our businesses we too have the CEO problem. Easy examples are the make-money-fast, seven-figure-promise bloggers or click-bait-ad-sites. It’s quick, it’s dubious, and it can be full of brashness, ego and make believe authority. It makes relatively a lot of money in the short term and then you’re done, people stop falling for the game, or the system changes and you exit.

But it’s also the good businesses that need to make tough decisions. Do we select the more expensive material that will develop our brand reputation over the long run and swallow the cost now or choose the cheap and easy one right now? Hire staff in your area or pay equitable wages overseas or offshore to cheap labour, developing countries? Focus on people before profit first?

You can build an ethical, sustainable business with deep passion and integrity. This is of course much slower. The money doesn’t appear as quickly. It requires you to make mistakes, to fix them and to look forwards. You’re going to go through periods of challenges and wins because you’re around in the long run for them. You’re building a business through or toward a dream. It’s sometimes tough and sometimes amazing.

Two choices. Your pick?

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