I looked at the front page of the Wall Street Journal today and the headlines told a tale of executive power being checked. Trump finally faces impeachment. WeWork’s board fired it’s founder-ceo. The former CEO of Volkswagen faces criminal charges for faking emissions controls. And Boris Johnson was rebuked by the UK Supreme Court. I don’t know what the deal is with craft brewers drinking light beer but I’m sure it is amusing.
We may be having a moment. The pendulum is swinging back to accountability to voters, shareholders, and established rules.
At the risk of over indexing on recent news, though, let’s look into how we got here.
The problem of the executive taking liberties is a long one. Plato, Aristotle, and Confucius all grappled with it. They recognized that in time of fast-changing conditions like war, countries need to entrust the executive with more powers. But they also knew that unchecked power leads to tyranny. Plato dreamed of benevolent philosopher kings.
While the founders of the US wanted three equal branches of government, the dynamic shifted in the 20th century with the expansion of the executive branch through world wars, depression, and the cold war and war on terror. One crisis after another seemed to call for a strong and expansive executive branch.
The relationship between the CEO and boards also shifted over time. The shareholder movement that started in the late 20th century had a long term impact of expecting boards to be more muscular representatives of their shareholders. If they didn’t, they risked being replaced by activist shareholders. At least that was the case for conventional public companies.
Meanwhile Silicon valley was building the case for more executive control.
We discovered founder CEOs are really good at exploiting new technology and painting a compelling vision of what was possible if we build something. Think of the founders of companies like Intel, HP, Apple, Microsoft. They led their companies with vision and were willing to challenge the establishment.
Jobs returning to Apple was an example that resonated particularly deep in Silicon Valley. It as close as you could come to a controlled experiment. Founder-led Apple flourishes in the early years. After the founder departs, the company flounders. He returns and it turns into a jaggernaut.
Then came Google. Their founders seemed to get it right with an experienced executive as CEO while they matured as company executives. Importantly, when they went public, they copied founder control share structures copied from family-controlled companies like the Washington Post. It gave the founders unprecedented control.
By the 2000s it was simply the way you did business if you were a smart founder CEO. The combination of plentiful capital and the precedent of Google, then Facebook, and many more made it easy to justify. Before then, it was an accepted practice to bring in the “adult” CEO to replace or augment the founders. As companies stayed private longer, the level of accountability of boards declined.
In both government and business we’ve had the rise of the “imperial executive” – CEOs and Presidents who have massive discretion with little accountability by boards of directors or Congress & courts.
Now it feels the pendulum is starting swinging away from the imperial executive. After being entranced by the magic of founder CEOs and ground breaking Presidents, we are learning what happens when we don’t get the benevolent philosopher kings. And rediscovering the truth of, “power corrupts and absolute power corrupts absolutely.”
The rise of the “people”
Here is what else these three have in common. The downfall begins with loosing the confidence of key members of a broad group of individuals. There is a widespread narrative about the boards of WeWork, Uber, and Nancy Pelosi rising up to re-establish the checks and balances of good governance. That’s because there is drama in these stories and they involve individuals. In other words, an easy to digest and report story.
The real truth is that these individual actors are channeling the signals from lots of individual actions. It was only when their CEO’s behavior was hurting the board members’ investment did they step in to fire their CEOs. Did these boards not know about questionable financial deals or a screw-the-rules culture earlier? Of course they did. WeWork and Uber boards were willing to put up with all sorts of bad behavior by their CEOs until potential public shareholders balked for Adam Neumann’s overreach, tanking their IPO. Uber’s board suddenly got religion after consumers revolted against Travis Kalanick’s toxic behavior with campaigns like #deleteuber.
The case of Trump, it took the recent Ukraine-Biden scandal for Nancy Pelosi to support impeachment. What changed? Moderate Democrat House members in swing districts, themselves reading the mood of their voters, voiced support for it. I found it especially interesting that a group of House members who all served in the military or intelligence branches described it as a national security concern. I agree. But weren’t any number of other previous Trump scandals threats to national security? Of course they were. The difference is that the sense of the voting public is changing.
This is a way that democracies and shareholder-consumer constituents should be operating. They can check the power of the executive through representatives.
Oh, and what about Boris and the VW CEO? The courts are having their day in Europe. It isn’t quite the same situation, but also a major check on the function of private and public executives.
It feels like we are having a critical moment in the accountability of executives in our society. There has been a wave of support for a stronger executive in business and government for decades. It feels like it may have crested. It will be an interesting theme to watch.