In what he apparently believes to be an act of noblesse oblige, Mark Zuckerberg has graciously assented – sort of – to bestow his presence on the U.S. Congress. Excuse me, but it’s not exactly optional for CEOs to appear before Congress, which also has a way of making you very sorry if you don’t. As I’m readying a talk for next week on the risks of platform companies entering financial services, I can think of none greater than imperious, isolated, brilliant CEOs who little understand that, rich and mighty though they are, they must still answer to the law in whose stead Congress and the Administration serve.
Corporate “culture” is a hot topic in financial regulation, but its focus so far is largely on the underlings and how well their compensation aligns with behaviors regulators think behoove a very big bank. Little discussed are imperious CEOs and the havoc they wreak. This omission may well be because FRB-NY President Dudley and others in the culture war recognize that imperious CEOs are impervious to outside influence. This is, though, the reason why they are so profoundly risky to the companies they lead.
I have known more than a few imperious CEOs in my day. Some have been amazingly charming, some not so much and a few were flat-out frightening. Most achieved the pinnacle of corporate power by dint of making older men see themselves in a young acolyte they then advance as an act of personal homage to their own past glories. For an excellent reference on this approach to personal advance, see Leo Tolstoy’s brilliant description early in War and Peace of one young go-getter and his quick rise to the top of the Russian Army. The Russian Army ultimately did what needed to be done against an even more imperious CEO named Napoleon, but it might have fared better with far less cataclysmic damage had a more open decision-making style characterized the court of the Czar.
So too with less exalted but almost equally imperious corporate CEOs. Some of the imperious CEOs I have known have done amazingly well for the financial companies they governed, but most ended in well-deserved disgrace.
A few I can think of off the top of my head include one for whom I directly worked at Bank of America three decades ago. Charming upwards, vicious downward, and sexist to boot, this CEO took what had then been the world’s biggest bank and turned it into the world’s largest failing bank in a matter of two or three years. Another such CEO ran a GSE in the early 2000s, convinced as he told the world that the GSEs’ success was due to smarts – his first among them – not to the darn handy taxpayer guarantee that made the markets so accommodating. A couple of other imperious CEOs I recall made their banks bigger and then bigger still by increasingly risky mergers of worse and worse companies as boards of directors congratulated them along the way.
So, will Facebook follow these financial companies into the dumpster? A major difference between all of the financial CEOs and Mr. Zuckerberg is that the corporate CEOs got their jobs by charm. Mr. Zuckerberg invented his company by a formidable combination of instinct and intelligence. However, Facebook’s corporate culture is if anything even more insular. And, although Facebook and the other platform companies lack anything like an explicit or implicit taxpayer guarantee, they are also totally unregulated and favored by investors who, intoxicated by yield-chasing and glamorous business models, have drunk at least as much platform-company Kool-Aid as Facebook’s inner circle.
We saw this all before in the dot.com bust, but the companies then were far less embedded in the fundamental infrastructure of virtually every aspect of global commerce and communication. Is the new combination of corporate omnipresence, seeming omniscience, and inbred U.S. oligarchs dangerous?
I can’t think of a past case similar to this one that ended well. As to the particulars for the financial-services sector, more on that next week.