Routes to becoming an industry leader
LAST year, top bosses in the US saw their salaries rise by 27%, despite 2010 being a fairly bad year for the rest of us. It seems the top levels of companies operate under a different set of economic rules.
Particularly sought after, at the top levels of industry, is a role called the non-executive director. In no other job is so little required and so much paid. One large Irish company requires its non-executive directors to attend eight meetings a year and pays them an average of €130,000 each. !
Let’s make 2012 the year where we bag one of these juicy spots and leave the recession in style. With that in mind, here are three simple routes for breaking into the cosy world of industry leadership.
Route 1: Be a man.
93% of directors of top Irish companies are male. So being a man is clearly your first success route to the top. Admittedly, the 50% of the population who are women are perhaps going to find this a bit unfair.
This is quite the achievement, you’ll have to admit. Even the macho world of politics, where 85% of TDs are male, could learn a thing or two from the top Irish companies in terms of how to exclude more women.
It is unfortunate really, as a lot of new research is showing a female presence in top roles helps reduce excessive risk-takingby companies. Psychologists have known for a long-time that women are more risk-averse than men and recent studies of this idea in finance are producing interesting findings.
Consider this example. We know that companies that engage in takeovers usually end up destroying company value by paying too much. Ideally, the average company would acquire other companies less frequently. With this in mind, and considering the research showing increased risk aversion of women, three Canadian researchers recently looked at female presence on company boards and takeover frequency.
They found that, for each 10% rise in female representation on a board of directors, there is a 7.5% fall in takeovers. More women in top jobs means fewer takeovers, which means less company value destroyed. That is nearly worth the €130,000 a year in fees.
Route 2: Be born into wealth.
So, you may be female, or one of the unlucky men who didn’t get a top job by following Route 1. Do not worry — another successful route for getting to the top is to be born into wealth.
Irrespective of intelligence, simply by having rich parents we are more likely to bag an industry leader role. All we have to do is find some way to manipulate the genetic lottery of birth and success will be ours.
Given that the average executive would be in their 50s, it may seem strange that parents could play such an important role in career success. But it is that vital early kick-start fuelled by money that seems to play a key role in their exalted later life status. The good secondary school leads to the good university, which in turn leads to the good job and the confidence to go out and seek further success.
Two Trinity researchers, Professor Brian Lucey and Yulia Plaksina, and myself, recently finished a research paper looking at some aspects of this “social status” issue in finance.
We looked at companies in the FTSE 100 index in Britain and trawled through company annual reports, Who’s Who, and other sources to find out the childhood backgrounds of company leaders.
One finding was that when parents could afford to send their kids to the most prestigious (and expensive) schools, they were three times more likely than publicly educated pupils to end up as industry leaders. Being born into money makes money, it appears.
Route 3: Already be an industry leader.
Okay, so you aren’t a man and you weren’t born into wealth. Don’t panic just yet. There is a third route for getting to the top. It’s nice and simple — see if you can answer “yes” to the following question: are you already an industry leader?
Industry leaders are ridiculously intertwined. I’m a director on your board, so I make you a director of my company’s board. It seems that one of the easiest ways to get one of these highly paid directorships is to already be a director. These things are like buses; you wait for ages and then suddenly they all turn up at once.
Research by TASC, an Irish research group focused on economic inequality, looked at director inter-linkages in a 2010 report and found a golden circle of 39 directors who sat on two or more boards of the top 40 public and state companies in Ireland. Joint top of the list for directorships was Sean FitzPatrick, who sat on the board of five of the top 40 companies over a three-year period.
This level of inter-linkage is very unhealthy. Being a good director requires you to critically evaluate the strategy and decisions of a company. This doesn’t happen when the same group is making decisions across all companies. They succumb to group-think; they do not value dissent even if it is valuable dissent, and they tend to make decisions in the interest of their friends instead of in the interest of the company.
For example, it has been found that CEOs receive higher pay when there are highly inter-linked boards. This isn’t connected to any achieved higher performance as a result of the inter-linkages; it’s just friends rewarding friends with higher pay.
But, spare a thought…
Of course, it’s not all free money. One unfortunate Irish director managed to be simultaneously on the boards of ICG (the shipping company that thought it was a property empire), Independent News & Media (the media company that thought it could print debt in the same way as it prints newspapers), and AIB (the bank that sunk a country). Can you imagine the stress of that? Turning up for your hectic eight meetings a year not knowing what crazy plans are about to be hatched or what new threat of bankruptcy is on the horizon. Although, I suppose his combined €200k plus of remuneration eased some of the stress.
* Michael Dowling is a lecturer in Finance at Dublin City University. He tweets on financial and economic issues at @MichaelMDowling.
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