The ultimate objective for any CEO is to ensure maximum profits for the business  – and if it’s a company, for its shareholders, specifically in the short term. Right?

Wrong!

The legendary CEO, Thomas B. McCabe challenged the role of CEOs in the mid-20th century. What he said then is what businesses now realize is the CEO’s true role.

The legendary CEO, Thomas B. McCabe challenged the role of CEOs in the mid-20th century. What he said then is what businesses now realise is the CEO’s true role.

While there are thousands of MBA graduates out of much-heralded universities, including the business schools at Harvard and Stanford that have been taught this, a growing body of business people worldwide are rethinking this maxim.

Instead of focusing on profits, the trend is for CEOs to recognise the value of business leaders concentrating on business growth through positive customer relationships and public relations.

The MBA for the CEO

While there is no doubt that the internationally recognised Master of Business Administration (MBA) qualification has become one of the most geographically portable post-grad courses available, and one that is considered by many companies to be a prerequisite for managers and CEOs.

MBA programs were initiated in the United States in the 1950s and “exported” to Europe a decade later. In those early days an MBA was viewed as a rather inferior, second rate qualification; but gradually it became a coveted tool that helped graduates make their way to top managerial positions. Unless it was your own home-grown company – or one inherited in some way – the MBA became the best way for a CEO to claim the spot at the top of the ladder.

While the format of the MBA at different universities does vary, the general idea is that it will give you the tools you need to become a business leader. Most incorporate skills related to finance, statistics and managerial economics, and offer electives that include international management and human resources. But the focus is still on profits.

A call for the CEO to get back to basics

Israeli professor emeritus, Shlomo Maital is one of a body of academics who is teaching out of the old-school MBA box. A world-renowned expert in “innovation management”, he talks about a former era of “militant shareholders” who would send a CEO packing if he (usually, rather than she) failed to deliver maximum short-term profits.

Prof. Maital cites an extraordinary story of an old-time CEO, the now legendary Thomas Bayard McCabe. This man was chairman of the US Federal Reserve from 1948 until 1951, and an employee of Scott Paper Company from 1927 till 1967 (and a member of their board of directors until 1980, two years before he died). Appointed to the position of CEO of the company at aged 34, his maxim was “whom we serve”, rated in this order:

  1. customers
  2. employees
  3. the community
  4. the nation
  5. shareholders

“If you serve the other four groups of stakeholders well and truly, then you will also serve the long-term interests of your shareholders,” he said.

Not only was McCabe personally successful, but he also built the paper company from a mill that employed 500 people to a multi-national giant (now part of Kimberly-Clark) that employed more than 40,000 in a network with 60 locations all over the world, including Australia.

While McCabe’s emphasis was on the long term, his contemporary, Prof. Milton Friedman, leader of the Chicago School of Economics – and 1976 recipient of the Nobel Memorial Prize in Economic Sciences – was avidly teaching short-term profitability.

Says Maital, “CEOs have become expert at short-term policies that bring rising share prices tomorrow, but prove ruinous in the long run after the CEO is gone and forgotten”.

This is a sobering thought.

Essential qualities the CEO should have

So what qualities should a good CEO have; and what is the true role of the CE?

Dr. Paula Phelan, president and CEO of Nadel Phelan, and a woman with more than two decades of global marketing, market research and public relations for high-technology companies (including Microsoft and Oracle) under her belt, narrows these down to five:

  1. Focus on a vision and communicate it to all the company stakeholders.  A great CEO gives direction and provides a good example to staff, customers and investors.
  2. Be aware of operational details, but don’t get involved with them. This is how a CEO can meet company goals and ultimately increase revenue.
  3. Read widely and stay on top of industry trends. Knowledge is essential for any CEO to be able to avoid potential threats and capitalize on on-going opportunities.
  4. Hire a strong management team and be sure to support their decisions. No CEO can go it alone. Instead a successful CEO will help to mentor managers and keep employees motivated so that company goals will be achieved.
  5. Meet your customers and pass on their needs, challenges and business goals. Customers are core; without them a company cannot succeed. Positive customer relations and communication will enable the CEO to share customer needs with stakeholders.

Ultimately, says Prof. Maital, universities worldwide need to revise what they teach their MBAs to “put shareholder profits last, rather than first”. And companies need to follow suit and encourage those in charge to reinvent the CEO’s true role and “dare to follow McCabe’s credo”.