What it wasn’t:

It wasn’t charisma, because none of these CEOs had much of it. So what was it then?

Frugality

These CEOs were cheap and constantly sought to reduce costs. [One key exception – they were not frugal about compensation incentivizing performance; employees often shared in the success of the company and did remarkably well]. Tom Murphy, called by Buffett the best CEO he’s ever seen, exemplifies the frugality of these CEOs:

• Painted only the sides of his first office building that faced the street
• Passed on a company’s limo practice for executives, taking cabs – the rest of the executive suite soon followed. (When asked if he was leading by example regarding taking cabs, he responded ‘is there any other way?’)
• The most memorable example of all: When a colleague wanted to hire a secretary, Murphy declined spending the money to do so. When the colleague noted this would only cost $20,000, Murphy responded that ‘20k per year would increase as she got raises over time, and she may stay for 30 years, and other people would then also want secretaries, and how much toilet paper would she use that we would have to pay for over those 30 years?’

Steadfast Independence of Mind

A CEO very much not on the list of top CEOs was the Citigroup CEO at the banking height of the mid-2000s. He declared on his firm’s increasingly risky financial decisions that ‘as long as the music is playing, you’ve got to get up and dance’. As the book reads, ‘he danced off a cliff from $240 per share to $3 per share.’ Warren Buffett, on the other hand, largely sat out the mid-2000s financial frenzy while his peers made great profits, and then when the 2008 financial crisis hit and fear peaked he deployed capital as aggressively as any time in his career. The Outsider CEOs each had examples like this, often multiple of them – achieving extraordinary results by consistently zigging while their peers zagged.

Getting the Key Decisions Right (or adjusting until they did)

Kay Graham, who took over the Washington Post in the early 1970s, exemplifies getting the rare key decisions right. When her husband unexpectedly left her with ownership of the Post, Graham made this string of decisions, changing the course of the paper:

• Replaced the editor in chief with Ben Bradley – about as important as any decision for a paper. He helped bring in an influx of talent, started the first national paper style section, and proved to be an exceptional fit for the role. [Also went through four COOs fairly quickly until she found the right one, again showing the importance of getting key people decisions right]
• Ignored the advice of her board who urged her to avoid meeting with Warren Buffet, relatively unknown at the time. “Figuring out he was a genius” and bringing him onto the board was one of the best decisions she ever made, informing subsequent key financial decisions.
• Chose to publish the Pentagon Papers when faced with unclear legal advice and many others urging her not (see above trait). The Pentagon Papers eventually led to Nixon’s resignation and the reputation of the Post was made, establishing it as the only journalistic peer to the New York Times.

Crocodile Patience

These CEOs could wait an entire decade or more for the right opportunity to emerge, and on the rare occasion with compelling returns, they could act with boldness and blinding speed. Case in point – Richard Smith, who made nearly zero acquisition moves for well over a decade until the right investment opportunity came up from a phone call. That same day he was on a plane to the potential acquisition’s headquarters and within a few days had made a company-altering deal equal to 40% of his company’s value. (See another example of crocodile patience here from the Warren Buffett May issue: https://qorrum.com/post/470)

Flexibility

From perhaps the top performing CEO of the last 75 years, Henry Singleton, on the importance of flexibility (all the more interesting given how significantly this diverges from most of us, but how similarly this was practiced by the most successful CEOs):

·      “I don’t reserve any day to day responsibilities for myself. I define my job in terms of having the freedom to do whatever seems to be in the best interest of the company at any specific times. I like to steer the boat each day rather than plan ahead way into the future. I know a lot of people have very strong and definite plans they’ve worked out on all kinds of things, but we’re subject to a tremendous number of outside influences, and the vast majority of them cannot be predicted. So my idea is to stay flexible.”

And 10 Quotes

• It’s almost impossible to overpay the truly extraordinary CEO (but the species is rare)
• Capital allocation over operations — the true job of the CEO
• Their advantage relative to their peers was temperament, not intellect
• Charisma is overrated; analytical thinking is key
• Always do the math. It’s just fifth-grade arithmetic
• Extraordinary results came as much from the deals not done as from those completed
• Long periods of inactivity, punctuated by occasional large moves, produced extraordinary results
• It’s not easy to diverge from peers — the business world is like a high school cafeteria
• Hire the best people you can and leave them alone
• Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is more efficient than patching leaks