CEO Incentives

Matt Levine wrote this in Bloomberg in 2022:

An alternative theory is something like: Most CEOs try to do a good job running their companies, and if you want to analyze how a corporation functions, you should focus on the CEO’s actual beliefs about what a good job would be. This is fuzzier and more subjective than looking at incentives, but I think it also has a real and underrated appeal.

This is good advice. You should take this advice, because the CEO’s priorities will, like it or not, infiltrate the firm.

Beyond the investing concerns you’ll find outlined on this site, some of my beliefs:

• The importance of focus. Most organizations don’t focus well.
• Autonomy matters. A lot. People like to be trusted and they like freedom.
• Priority matters. My list, in order: 1. Clients 2. Advisors 3. Employees 4. Me
• Groupthink is bad. You cannot innovate if you all believe the same thing.
• Competitive, driven people are fun to be around.
• External authorities or “experts” should not dictate your decisions.
• I maintain both a sense of urgency and a long time horizon.
• You should not destroy your home life for work.

I spend a lot of time looking at bad decisions, in corporations, government, school systems, and other places, and thinking about how those decisions originated. Sometimes I’ll review these cases with people at the firm to examine our own culture and processes.

~Dan Cunningham