Several years ago I interviewed the late Jack Welch, the legendary former chief executive of General Electric (GE), who was launching his autobiography about his career at GE, which he turned into the most valuable company in the world at the time.
Welch was known to be ruthless in his management style and how he ran GE. However, he also knew that despite being fêted by the media and investors for delivering stellar returns, there would be a time when he would have to move on. GE and Welch were not one and the same. As much as Welch wielded power, he was still answerable to the norms of corporate governance.
In the two decades since Welch was hailed as the most powerful CEO of his era, his influence at the company appears negligible compared with the dominance many chief executives now hold. We have entered an era of the cult of CEO, particularly in the technology sector.
We have entered an era of the cult of CEO, particularly in the technology sector
Checks and balances
This stood out to me in the wake of the verdict in the US trial of Elizabeth Holmes (pictured), who was convicted of fraud and conspiracy charges for duping investors to pour money into her biotech company Theranos.
Holmes controlled Theranos to such a degree that investors and even board members were happy to allow her to run the business without much oversight or scrutiny about the underlying technology, which promised to revolutionise blood tests for healthcare checks, but which didn’t actually work.
That Holmes was allowed to accrue such influence is a sign that investors and boards are prepared to give CEOs almost unlimited control for fear of losing a visionary leader.
What is needed are strong boards and chairmen who are prepared to ask the tough questions
As the trial evidence showed, in the rush to seize the advantage with new and innovative technologies, there is a risk that the normal checks and balances of boards holding executives to account are viewed as worth dispensing with when the prospect of potential exponential returns are factored in.
While Theranos may be an extreme example, it highlights the dangers of ceding authority to a single person and blurring the lines of corporate governance. And there are plenty of others. For example, WeWork came undone as its founder and chief executive Adam Neumann branched out from being a provider of leased office space into wanting to change the world.
Many companies are now inextricably linked with one individual. Mark Zuckerberg’s grip on Meta, as Facebook is now known, is maintained through a dual-class share structure. And there’s little doubt that Elon Musk is Tesla. I’d challenge anyone to name another senior executive or board member of these companies.
In the Jack Welch era, there were few business leaders who were instantly associated with their companies. A driven, ambitious and strident chief executive can be no bad thing for any company, particularly when businesses are scaling up. But what happens when companies reach maturity and require stable leadership, or in times of difficulty when change is required?
It is disappointing that we’ve begun to import the dual-class share structure so prominent in Silicon Valley to this side of the Atlantic, something which investors seem to tolerate as a necessary evil. However, it potentially disenfranchises stakeholders.
What are needed to counterbalance this are strong boards and chairmen who are prepared to ask the tough questions. When the chief executive becomes the problem and unwilling to change course, will boards be prepared to take the ultimate decision and remove the leader?