Companies with visionary leaders are hurt if the CEO and chairman roles are split – Egor Matveyev

Visiting Assistant Professor of Finance, Egor Matveyev

From MarketWatch

A number of recent corporate scandals put a renewed focus on the dual role of CEOs serving as chairmen of the board of directors.

Carlos Ghosn of the Renault-Nissan-Mitsubishi Alliance is currently jailed in Japan on charges of under-reporting his pay. Facebook’s FB, -2.22%  Mark Zuckerberg has been criticized on how he managed recent crises, and has been called on to step down from the chairman post. Tesla’s TSLA, -3.96%  Elon Musk had to resign from the chairman role as part of the settlement agreement reached with the Securities and Exchange Commission in its investigation into Musk’s erratic communication through social media, which might have misled investors.

In recent years, the number of CEOs in a dual CEO-chairman role in large U.S. firms has been steadily declining. In the mid-1990s, about 65% of all firms were led by CEOs who were also chairmen. Most recent data from fiscal 2017 show that this number is down to 41%. Given the public pressure to separate CEO and chairman positions in publicly traded firms, this downward trend is expected to continue.

Advantages, disadvantages

There are many potential benefits that come from splitting the roles of the CEO and the chairman. First, it puts checks and balances in place, and ensures that important decisions are weighted and, if needed, challenged. Second, it sends a signal to all stakeholders — employees, business partners and shareholders — that the firm has two centers of power, and therefore is likely to be more stable. Third, it shows that the firm is more likely to be equitable, which may increase its appeal in the eyes of customers, prospective employees and business partners.

While the benefits are frequently discussed, costs are rarely mentioned. In my recent work with co-authors, we show that having additional power amplifies the effect of both good and bad CEOs on firm value and performance. It means that if the firm is single-handedly run by a powerful CEO, disastrous events, such as suspected fraud in the case of Nissan or misleading investors through social media in the case of Tesla, are more likely to happen. On the flip side, however, it also means that strong, visionary leaders benefit from being able to run their firms as they see fit and having their business decisions unchallenged. Many of the great success stories, such as Apple AAPL, -0.87% (under Steve Jobs, until his death in 2011), Amazon AMZN, -0.72% (Jeff Bezos) and Netflix NFLX, -1.50%(Reed Hastings) are all associated with powerful chairmen-CEOs. As we know, the ability to move fast and execute is critical in fast-moving industries.

Effect on shareholders

We show that these amplification effects of powerful CEOs on shareholder value are very large. For example, while good CEOs on average account for 4% of their firms’ value, good CEOs who have more power account for as much as 9%. Conversely, while bad CEOs on average can destroy up to 3% of shareholder value, bad CEOs with more power destroy more than 5%.

Read the full post at MarketWatch.

Egor Matveyev is a Visiting Assistant Professor of Finance at the MIT Sloan School of Management.

Every leader’s guide to the ethics of AI – Tom Davenport and Vivek Katyal

Fellow, MIT Center for Digital Business, Tom Davenport

From the MIT Sloan Management Review 

As artificial intelligence-enabled products and services enter our everyday consumer and business lives, there’s a big gap between how AI can be used and how it should be used. Until the regulatory environment catches up with technology (if it ever does), leaders of all companies are on the hook for making ethical decisions about their use of AI applications and products.

Ethical issues with AI can have a broad impact. They can affect the company’s brand and reputation, as well as the lives of employees, customers, and other stakeholders. One might argue that it’s still early to address AI ethical issues, but our surveys and others suggest that about 30% of large companies in the U.S. have undertaken multiple AI projects with smaller percentages outside the U.S., and there are now more than 2,000 AI startups. These companies are already building and deploying AI applications that could have ethical effects.

Many executives are beginning to realize the ethical dimension of AI. A 2018 survey by Deloitte of 1,400 U.S. executives knowledgeable about AI found that 32% ranked ethical issues as one of the top three risks of AI. However, most organizations don’t yet have specific approaches to deal with AI ethics. We’ve identified seven actions that leaders of AI-oriented companies — regardless of their industry — should consider taking as they walk the fine line between can and should.

Read More »

Legacy code and the other AI – Tara Swart

MIT Sloan Senior Lecturer, Tara Swart

From Forbes

Have you heard of legacy code? In her article in the Financial Times, Lisa Pollack reveals how this has become a growing issue for businesses engaged in a process of modernizing their software and systems, with many large organizations and government departments’ websites relying on code headed for the “digital dustbin.” Archaic languages, such as Cobol, created 50 years ago, are a threat to progress not only for the direct and obvious inconvenience of them (Pollack describes how the Pentagon was relying on the use of eight-inch floppy disks to coordinate its intercontinental ballistic missiles and nuclear bombers, for example)  but also for all the indirect cascade of side effects that legacy code may trigger unpredictably in other parts of a system when you try to change or overwrite any part of it. To give an example, this could mean that a successful update, or overwriting, of some code for the purchasing part of a business within its ERP system may cause unpredictable and unexpected collateral damage elsewhere, as part of a complex technological butterfly effect that demonstrates the interconnectedness of all system. This is known as code fragility.

No department is an island, including yours

The article got me thinking again about my OPI model, and more generally about the complex ecosystem that’s at work in any business of any size. No department functions in isolation, and no department can be rebuilt or improved upon successfully if it is treated as an island.

Read More »

Diversity & inclusion at Spoiler Alert: our 2018 journey – Ricky Ashenfelter

Ricky Ashenfelter, MBA ’15, Co-Founder and CEO of Spoiler Alert.

From Medium

As we jump into 2019, I’ve been doing a lot of reflecting on how we’ve grown as a business over the last year. Growth in customer base, product capabilities, and market awareness of food waste as one of the leading contributors to climate change.

As the leader of our company (and by necessity in an early-stage startup: head of people ops, office manager, and employee handbook author), the most rewarding growth for me has been that of our team, having gone from 10 full-time employees (FTEs) at the start of 2018 to 19 FTEs at the start of 2019.

For some added context, we’re a 3-year old, Boston-based technology startup working in the fields of food, supply chain, and sustainability. Impact is one of our core values, and the environmental and social outcomes of our work are key drivers of everything we do. Motivated by a desire to create a stronger and more resilient team, we made a concerted effort in Q1 2018 to do something we find many companies don’t prioritize until much later on in their journeys. That is, to ensure we had the processes and values in place that enable us to attract a more diverse workforce and foster a more inclusive work environment.

Read More »

How AI-human sumerminds will save jobs – Thomas Malone

Thomas W. Malone is the Patrick J. McGovern (1959) Professor of Management, a Professor of Information Technology

From Management Today 

We often overestimate the potential for AI because it’s easy to imagine computers as smart as people. Science fiction is full of them. But it’s much harder to create such machines than to imagine them.

All of today’s most advanced AI programs are only capable of specialised intelligence —doing particular tasks like recognising faces, playing Jeopardy, or driving cars. But any normal human five-year old has far more general intelligence — the ability to learn and do many different tasks — than even the most advanced computers today. Experts on average predict that human-level artificial general intelligence is about 20 years in the future, but that’s what they’ve been predicting for the last 60 years.

On the other hand, we often underestimate the potential for using computers to provide hyperconnectivity — connecting people to other people (and machines) at massive scales and in rich new ways. In fact, it’s probably easier to create massively connected groups of people and computers (like the Internet and social networks) than to imagine what these ‘superminds’ will actually do.

Superminds – such as hierarchies, markets and communities – are composed of people and computers doing things together that neither can do alone. For example, superminds use machines to do complex calculations but people to decide which programmes to run in the first place and what to do when things go wrong.

Read More »