SPEAKERS: ANDRE BOUCHARD, former chancellor, Delaware Court of Chancery; MARIETTA COLSTON-DAVIS, director and member of the audit and compensation committees, Priority Technology; LAWRENCE CUNNINGHAM, director, Weinberg Center for Corporate Governance at the University of Delaware; CHARLES ELSON, director, Enhabit Home Health, Blue Bell Creameries; executive editor at large, Directors & Boards
CUNNINGHAM: What do we mean by “superstar CEO” and how does that label differentiate that cohort from other CEOs?
ELSON: The concept really dates back to the late 1970s/early 1980s. It came from a business school professor who was talking about how you motivate talent. The idea was that there are certain individuals who are extraordinarily talented. She took this idea from the baseball world. There are great players who get paid a lot of money. Why? Because they are superstars. Whether it’s basketball, baseball or football, we pay these folks an enormous amount of money because their talent is so phenomenal that the value they create is worth the money that you pay them and that they can move between teams. They are superstars and this person thought that should carry over into the business world. Therefore, superstar managers should be paid a lot more. And as baseball players move around and carry great weight to their team, so can CEOs. That became the argument for supersized salaries. “I deserve more than anybody else because my talents are just out of this world.”
I used to believe in the superstar CEO theory. I thought that there were people who are extraordinarily talented and you basically put your bet on them. What I’ve learned over the years is the term “superstar CEO” is a misnomer. There is no such thing as a superstar CEO. They are talented CEOs. But the notion of a superstar seems to suggest that you are not going to make a mistake. You're not human. You fly in a cape and rescue all. That’s not true.
CUNNINGHAM: Marietta, do you have anything you would add to or subtract from that definition?
COLSTON-DAVIS: The dichotomy is “The Oracle of Omaha,” which is Warren Buffett vs. “Chainsaw Al” [Dunlap]. From my perspective, it all comes down to differences in leadership philosophy. Any time I step into a board role, I look for three things. What are their philosophies as it relates to how they want to grow the business? Is it short-term gains just for shareholders or is it a long-term strategy? And what is their relationship with their employees? Buffett’s relationship with his employees, how he cares about his employees, in my personal opinion, is second to none. I think that is one of the reasons he’s been so successful. I’ve had the great opportunity to work with some amazing CEOs — Bill Gates, Steve Ballmer, Satya Nadella, Ginni [Rometty] — and they all had a different approach to things, including leadership philosophies. But I think the one thing that most of them were strong at was employee relations.
CUNNINGHAM: Is a superstar CEO born that way? Are there inherent qualities or is there something about the situations or circumstances they find themselves in that enables them to become outsized?
COLSTON-DAVIS: It’s no different than any leader. There are some inherent things that you have to come to the table with — intellectual horsepower, understanding, strong IQ — but you have to be able to work with your employees. You have to be able to work with the board and then you have to be able to work with “the street,” too. Some things you can teach a CEO if they’re willing to listen. I have found in my travels that some are willing to listen and some believe their own hype and drink their own Kool-Aid. Those are the ones that are less successful.
CUNNINGHAM: What is the legal perspective on the definition of a superstar CEO?
BOUCHARD: The key issue here is how do you differentiate? All CEOs, I’m sure, view themselves as stars. So how do you differentiate between stars, from the quote-unquote superstar or the supernova CEO. I’m going to resort to the Musk decision. I’m going to use a definition that’s referred to in an article cited in that case. The authors define the superstar CEO as, and I think it makes a lot of sense, somebody who is widely perceived by the market, shareholders and/or directors as having a unique ability to generate superior returns, and in that sense they are considered vital to the corporation. I put that out there as a working definition. I think it’s a workable definition that gives you a differentiating consideration to apply. And the perception of having this unique ability can come from many sources. Some people are the founders or the innovators. They invented the technology. They have the vision. And some people have industry acclaim. Think of Jack Welch in his day. Think of Jamie Dimon today. They may only own a percentage point in the company, but they have industry acclaim that gives them a certain aura or special status. Founders like Elon Musk, or Reed Hastings, they have special innovative aspects. It’s those kinds of things that people associate with them having this unique value to the entity. In other words, somebody the company can’t live without. And there are consequences to that, which include over-deferring to that kind of person.