A contrarian perspective: US vs. Canadian Economics...

I enjoy reading this blog from time to time...it chronicles how Canadian investors somehow missed the message that assets do not appreciate forever, despite the meltdown of US real estate.

http://www.greaterfool.ca

It never ceases to amaze how many experts get it wrong...and how often.  Although, Garth Turner has been 'wrong' on timing the Canadian real estate crash for years - it still hasn't happened.

Now I'm wondering whether to pay attention at all...

Stop telling me to 'hire the best people'....

Am I the only one becoming increasingly annoyed when wildly successful investors and business people claim that their secret was to ‘hire the best people’ ?

I have heard this axiom passed on from venture capitalist to entrepreneur…from CEO to business journalist….Randall Stross, author of ‘The Microsoft Way’, suggested that the single biggest reason for Microsoft’s success was its ability to hire very smart developers and give them free reign.  I myself have passionately repeated the axiom at various lectures I’ve given over the years…..

“To build a great company, you must hire great people.”

 “The company with the best management team, wins”

 “That business failed because it always hired B players”….

Right.

Ironic, isn’t it?  Managing Director of Sterling-Hoffman, an executive-search firm who’s stated purpose is to help build companies by recruiting the very best people, suggesting that ‘great people’ are overrated?

I suppose I should clarify that I am joking.  Mostly.

I’m pretty sure that smart, hard working employees play a significant role in the success of a company. Every entrepreneur has felt the amazing relief that comes with hiring a star player; suddenly, things just start to go right in a way that they never seemed to before.  Competence is a beautiful thing.

What irritates me, however, are the false implications of the ‘Hire the best people’ mantra. 

The first false implication is that we are capable of predicting who will be an ‘A player’ from something as flawed as a standard hiring process. No matter how many interviews are conducted, no matter how many references are checked, no matter how many google-like brain teasers are applied….the likelihood of predicting the future performance of a CEO or Senior Executive….is average at best. In fact, I’m not even convinced that most hiring processes succeed in choosing the best person from the slate of finalists vying for the job.

I say this because I have seen too many smart Board Members make ‘bad’ hiring decisions.  Here is a typical story: the board of directors enthusiastically selects a CEO from a pool of three finalists (all of whom have superb pedigrees). The CEO they choose formerly led a business unit in Cisco to over $300m in revenue.  The board of directors is certain that the CEO they have chosen is easily the best, the brightest, the most qualified.  Two years later, the company has failed to make its targets…the CEO has fallen out of favor…and is terminated. The board then begins a new hiring process, attempting to find a new CEO with the skills that the last one didn’t have.  They interview three potential candidates, and this time, they get it right. They hire a CEO who is better, brighter, and more qualified than the last.  This CEO succeeds where the last one failed. The company beats revenue expectations for the next three years, and the CEO sells the company to Google for $85 million – providing the investors a 10x return on their money. 

So, in the court of corporate opinion, the first CEO was a failure.  The second CEO was a great success.

Does that mean the hiring process the second time around was dramatically better?  Did the first CEO hired by the board constitute a ‘dumb’ hiring decision?  Hardly.

Any number of reasons could explain why the second CEO was ‘more successful’.  Perhaps the market was finally ready to take off. Perhaps the competition slipped.

Which brings me to the second false implication of the ‘Always hire great people’ theory, which is that the actions of any one individual are responsible for his/her own success or failure. Plenty of smart, hard working management teams do all the right things and still fail miserably.  And I’ve met plenty of mediocre executives who are in positions of great importance inside flourishing companies or business units. It’s amazing how many empty suits  make it to the top.

‘Bad’ hiring decisions are not the same as ‘dumb’ hiring decisions.  Bad hiring decisions are only 'bad' because the person's hiring was not directly correlated with success in the company's eyes. What we often call ‘bad’ hiring decisions sometimes have nothing to do with the person that was hired.  How do we know the first CEO was at fault for the company’s failure to meet expectations? That’s like saying Barrack Obama is a ‘bad’ President because he couldn’t fix the economy in two years.   Barack Obama might be a bad President, but whatever your politics, you surely understand that failing to fix an economy as screwed up as the one he inherited is not proof of incompetence.

Startups, established businesses, or the US economy – success in any of these depends on an infinite number of variables, the interactions of which are far too complex for any CEO or management team to manage. A company can succeed in spite of bad employees and poor or unremarkable leadership. I’ve seen it happen (no, I will not name names).  And a company can fail despite having the most competent leadership team in the world.  I’ve seen that happen too.

This blog is called ‘If the Black Swan was a CEO’ in homage to Nassim Taleb’s brilliant and poetic book by the same name.  The point of Taleb’s ‘Black Swan’ theory is that human beings, collectively, are absolutely terrible at predicting the future, explaining the past, or controlling their collective destiny.

CEOs are human.  Ergo…no CEO should be entirely blamed for failure, or credited for success.

Isn’t it about time that we, collectively, stop pretending like we know what we’re doing?  Life is uncertainty, and business is a subset of life. 

The next time a bright-eyed MBA asks a successful entrepreneur for the secret to his success….I’d like to see the entrepreneur say, ‘Sometimes, shit happens.’