Business
In the author's account, pushing power and autonomy down to local managers and keeping headquarters staff tiny releases entrepreneurial energy while cutting both costs and resentment. Decisions about where the money goes stayed at the top.
Each of these chief executives had a capable second-in-command who ran day-to-day operations. That left the leader free to concentrate on strategy and on where capital should go.
The author argues that the true test of a chief executive is the long-term return to each shareholder, measured against peers, not growth in sales, profits, or company size. A firm can get bigger while each owner's slice gets smaller, so the size of the whole is the wrong scoreboard.
Most bosses reach the top by excelling at marketing, engineering, production or office politics. At the top they suddenly must decide where capital goes, a different skill they have rarely practiced. That mismatch, the book suggests, is why so many chief executives allocate money poorly.
In the author's account, deciding where a company's cash goes is perhaps a chief executive's most important responsibility. The choices are reinvesting in the business, buying other firms, paying down debt, paying dividends, or buying back shares, and each should earn the best possible return for owners.
The author holds that the cash a business actually generates, not the earnings it reports, determines its long-term value. Leaders who steered by cash flow could ignore the accounting figures that markets and the press fixate on.
When a company's stock is historically cheap, buying it back raises the value of every remaining share. All but one of the book's eight firms repurchased 30% or more of their shares over time. Some borrowed against strong cash flow to do it, and they rarely issued new stock.
The author credits independence of mind with letting these leaders sell high and buy low over decades, often doing the opposite of what peers and markets were doing. Over long periods, that contrarian timing compounded into large gains in per-share value.
All of these leaders were first-time chief executives, and most had little experience in their industry beforehand. The book suggests that lacking the usual pedigree made it easier to question the industry's conventional wisdom rather than repeat it.
The book's best performers were humble and frugal, and they avoided the press, investor promotion, and management fads. Working in obscurity, they were appreciated only by a few sophisticated investors, yet they outperformed the market roughly twentyfold.