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The Decline of the Baronial CEO - Leadership Lessons

King on his throne.jpgNelson D. Schwartz of The New York Times published a great article “The Decline Of The Baronial CEO” two weeks ago. The article put the recent abrupt retirement of Jeffrey Immelt, former CEO of General Electric, into the greater context of its meaning for the future of the CEOs in the largest organizations in this country.

The “baronial” CEO of traditional corporate America, who ruled as a larger than life mix of a statesman, thought leader and philosopher, is drawing to a close.

Driven by relentless activist shareholder pressure and a change in cultural norms the imperial industrial CEO is now fading away.

General Electric is just the latest storied name in corporate America to show its leader the door. Ford’s chief executive, Mark Fields, had been on the job for less than three years when he was fired in late May. Two weeks earlier, Mario Longhi of U.S. Steel abruptly stepped down.

With these departures, the American era of the baronial chief executive, sitting atop an industrial dominion with all the attendant privileges, is drawing to a close.

It is one consequence of a transformed economic landscape in which many of the mega-corporations that defined 20th-century commercial life are confronting a host of new business and technological challenges. These changes — in corporate leadership, on boards, and across Wall Street — are recasting the very idea of industry in America.

The pretense and elevated stature of the industrial CEO are changing. The immense corner offices with all of the elegant trappings of the past are being replaced with more open and egalitarian confines. Nelson Schwartz provides some examples of how this is a shift in the corporate office is taking place.

At Exxon Mobil, it’s referred to as the God Pod. On the 11th floor of Procter & Gamble’s headquarters in Cincinnati, there was Mahogany Row. And while the official name of the executive wing at G.E.’s Fairfield headquarters was E3, inside the company it was known as Carpet Land.

And no wonder. From the Persian rugs that lined the hallways to the plush wool floor covering in Mr. Immelt’s office and private conference room, the carpets created the hushed atmosphere of a monastery or library.

“It was so quiet, you could feel the energy drain out of you,” said Ann Klee, the G.E. executive who oversaw the move to Boston and the development of its new headquarters there.

What these executive aeries all shared were an Olympus-like sense of remoteness, authority and defined hierarchy.

At G.E., even in Carpet Land, office size grew in lock step with rank, and the biggest corner space was reserved for the chief executive. Not only did Mr. Immelt have his own bathroom, but his two administrative assistants had a private bathroom and a pantry.

The abundant perks — in G.E.’s case, two helicopter pads, a shoeshine station and an executive dining room linked to the kitchen below by dumbwaiters — fed the sense of exalted status. At the same time, faster economic growth and rising earnings camouflaged the cost of these indulgences.

Schwartz goes on to show how the recent corporate move of General Electric, from their “sprawling Skidmore, Owings & Merrill-designed emblem of 1970s corporate modernism in favor of smaller, humbler digs in downtown Boston last year perfectly symbolizes the change that is taking place.

If the old quarters for G.E.’s top brass were akin to a pedestal, the new ones are more like a fishbowl. At G.E.’s interim headquarters in Boston, and in the permanent one set to open next year, the offices for top leaders have glass walls that enable them to see out and, in turn, let employees see in.

They are also much smaller. In Fairfield, a handful of senior G.E. leaders and their assistants occupied 44,000 square feet in the executive wing. Now the same group shares a total of just 7,800 square feet, less space than in the big mansions many C.E.O.s inhabit in places like Greenwich, Conn., or the Bay Area.

The article also makes some interesting insights that CEO hubris is not necessarily vanished. While the roles of the CEOs in traditional corporate America is changing, the trajectory seen by the corporate leaders of the tech industry is taking a different path.

Tech leaders, energized by surging stock valuations and increasing revenues, have now taken over as the lords of the land. Here are some great examples to illustrate this point:

While corporations like GE are shrinking their corporate headquarter square footage tech leaders like Apple are doing the opposite. Apple has just opened a $5 billion dollar new HQ that is best described this way in a Harvard Business School article:

The sheer magnitude of Apple’s new headquarters sets it apart from any other technology workspace on the West Coast. Instead of many buildings spread across a campus,
the site features one master circular structure (2.8 million square feet) called the Ring, designed to house 12,000 employees. (To get a 
sense of its scale
, the Ring’s internal courtyard is wider than St. Peter’s Square in Rome.

Its external wall would surround the Pentagon.) The four-story glass building designed by Norman Foster seamlessly integrates a long and diverse list of technical achievements — from the enormous solar panel array on the roof to hidden cable management mechanisms at the workstations — all according to Jobs’s uncompromising design standards.

Jeff Bezos and Amazon, believing that tech can solve anything, has begun purchasing definitely non-tech businesses like Whole Foods and The Washington Post thinking that their superior business acumen will be able to turn around the fortunes of these brick and mortar institutions.

While activist investors are putting immense pressure on the CEOs of traditional institutions it seems that tech is able to operate by a different set of rules. Nelson D. Schwartz makes the following observations in his article:

Google’s Class B shares have 10 times the voting power of normal shares, enabling the founders, Larry Page and Sergey Brin, to 
retain control
 of the holding company Alphabet without owning a majority stake. Facebook also has a multi-class stock structure that effectively guarantees that the founder Mark Zuckerberg will retain control even as he sells shares. And on this point, the company offers no apologies.

While tech seems to now rule the land and create the rules, it is not hard to imagine what will happen once the growth slows and the valuations soften.

I want to thank Nelson D. Schwartz for his brilliant New York Times article for the inspiration for this post. I encourage everyone to read his full column and follow him.