Jan 21, 2014

    Four sure bets for the New Year

    THE beginning of a year is full of promise. Just like spring training for sport, when anything seems possible, I've always looked at the early days of January with excitement and anticipation.

    There will be much that will happen, both good and bad, that we simply can't predict.

    But in the world of business, I can guarantee four sure things.

    A chief executive will be fired and walk away with tens of millions of dollars in "severance" pay

    For shareholders, employees and CEO watchers, this is surely one of the most infuriating milestones in business.

    The leader who is unsuccessful is richly rewarded for his efforts on the way out and given a golden parachute.

    How is this possible? What about pay for performance, the mantra of shareholder activists and compensation apologists everywhere?

    The dirty little secret is that boards of directors will struggle to woo the CEOs they want, without first ensuring a soft landing for them if things don't turn out well. It's not that these CEOs are being rewarded for poor performance, it's that boards typically can't even entice them to take on the top job without a golden parachute. It's expected.

    So steel yourself for this inevitable event this year, accompanied by the usual hand-wringing media commentary. But the die has long been cast. All that awaits is to see who gets the axe...and the loot.

    A savvy investor in Hong Kong, London, New York or, maybe, Singapore will bank eye-popping portfolio returns - and the next investment genius will be born

    This is actually one of my favourites, and you can set your watch by it.

    In a world of investors, there is huge variation in the bets people make: Be it large-cap stocks, small-cap stocks, emerging markets, commodities, gold, real estate or fine art.

    Isn't it rather evident that some investors will do extremely well and others will do extremely poorly? Yet we anoint the "home-run hitters" with attributions of cleverness, daring and genius.

    Author Nassim Taleb demonstrated in his book, The Black Swan: The Impact Of The Highly Improbable, how people are very bad at understanding random events. We have a natural tendency to create narratives that make everything sound logical, so we believe the super-successful investor did well because of his individual talent and behaviour.

    Don't fall into this trap. A more likely explanation is this: The distribution of investment outcomes inevitably includes outliers on either end.

    We call those on the extreme positive side "geniuses", and those on the extreme negative side "fools". It is much more likely that these outliers were extremely lucky, or unlucky.

    A young high-tech entrepreneur will refuse to sell his super-hot start-up for billions of dollars to Silicon Valley royalty (think Google, Facebook, Apple)

    The most prominent of such entrepreneurs last year was Snapchat founder Evan Spiegel.

    He became more famous for saying "no" to Facebook's US$3-billion (S$3.8-billion) offer to buy his company than he was for creating the quick-disappearing instant-messaging app in the first place.

    But, for every entrepreneur - like Facebook founder Mark Zuckerberg, who turns down a billion-dollar suitor and does even better - there are countless others who should have taken the money and run.

    Mr Andrew Mason, the founder of Groupon, refused to accept US$6 billion to sell his company to Google. He no doubt regrets that move, especially now that he's been pushed out as CEO and, when that happened, Groupon was worth around US$3 billion.

    Six years ago, Yahoo was offered a blowout acquisition price by Microsoft - a whopping US$44.6 billion - only to have founder and then CEO Jerry Yang turn the other cheek. Even with a terrific 2013 run-up in Yahoo market capitalisation (under current CEO Marissa Mayer), the company's valuation is still not back to the Microsoft buyout number.

    Mr Spiegel may be having second thoughts now that calls for his removal over his poor handling of a major security breach at Snapchat are accelerating. Despite being warned in August by a security firm that some of its program coding was vulnerable to hacking, little was done and hackers made off with 4.6 million user names and phone numbers.

    Instead of apologising, Mr Spiegel pinned the blame on the culprits, without acknowledging any responsibility to his customers.

    Whether he will find himself in the same spot as Mr Mason remains to be seen, but the pattern is set. The only question is, which entrepreneur will be next to tell a suitor that its money isn't wanted?

    More women will break the glass ceiling of the C-suite in major companies

    I hope this one is not wishful thinking.

    In last year's Fortune 500 list, there were just 23 female CEOs - not a big number. But that number is higher than it was just a year ago.

    Last year, giant companies like General Motors, Lockheed Martin and General Dynamics promoted women to the very top job.

    The CEOs of IBM, PepsiCo, Hewlett-Packard and Yahoo are also women.

    It's possible that my prediction for women may be aggressive, but it's the one prediction I believe will be on everyone's list for years to come.

    Just take a look at those who are excelling in high schools and universities, especially in the United States.

    Much of the new wave of talent coming into the workforce is female, which will surely create ripples for years to come. Coupled with slowly changing attitudes - at least in the most developed countries - about the role of women, and you have a movement.

    Bob Dylan's song, Ballad Of A Thin Man, includes the refrain: "Something is happening here/But you don't know what it is/Do you, Mr Jones?"

    Like many Dylan songs, its literal meaning is opaque, yet it seems appropriate as a descriptor of the changes afoot in the C-suite, this year and for years to come.

    You can count on it.

    Dr Finkelstein is a professor of strategy and leadership, and Dean for Executive Education, at the Tuck School of Business at Dartmouth. He is also the author of 16 books, including Why Smart Executives Fail.