What is up with Elon Musk? Is he OK? How bad for a business is it if the CEO goes off the rails?

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Hello and welcome to the Cognitive Engineering Podcast produced by me, Fraser McGruer, for Aleph Insights. In this series of podcasts, we take a look at interesting topics and discuss what we think they tell us about analysis and decision making. I'm here with Peter Coghill and Nick Hare of Aleph Insights, and this week we're discussing Elon Musk. Peter, what's on your mind with Elon Musk?

Well, I'm actually a little bit worried about him, his personal and mental health, because he seems to be going a bit odd. He seems to be going off the rails slightly. So, over the last few months, he attacked Vernon Unsworth, the cave diver chap who helped rescue the boys in Thailand from that flooded cave. He has had various negative outbursts on Twitter and other media platforms about negative coverage that Tesla got for its production problems and design problems. And fairly recently as well, in an interview in the New York Times, he was... There's a comment around the interview. The interviewer was obviously a bit worried about his mental health, because he was complaining about having no friends and working too many hours a day and saying, this is the most stressful year of my life, et cetera, et cetera. So, I'm worried about him. I'm worried about him, but what... I'm sure he's got plenty of other people who are paid to worry about him. Well, yes, yeah. But he doesn't need your concern. Well, I know. It's probably not going to help. So, that got us thinking like, well, he's a CEO of SpaceX and Tesla and Hyperloop and various other things. He's up there in terms of business. And if I was one of his shareholders, I'd be very concerned, probably not for him, but more for my investment. So, really, it's got us prompt the question of CEOs. How important are they in a business? What does the personality of a CEO do to a business? How much of the credit can you give them for success or failure of a company? And how bad can it be if they go off the rails?

Well, let's sort of just keep on the subject of Elon Musk for the moment. So, remind me, outside of Tesla, so you said SpaceX is one of them, right? So, it's SpaceX. And what's the other one?

So, Hyperloop, I think it's called. What does Hyperloop do? So, it's an alternative transport system, a big vacuum tube where you push little trains through at high speed.

What does SpaceX do? I remember, I didn't know. They go to space.

They do rockets.

Okay. So, I mean, that's just very, are those, are the other two publicly owned as well or rather publicly traded? Good question. I mean, how is, I mean, he's gone nuts. He is going nuts.

Well, I mean, on the other hand, he's a pretty creative, interesting guy. Do we know he's going nuts? Let's assume he's going nuts for the purposes of the podcast. I mean, I can see where he's coming from. I mean, it must be bloody annoying. You know, you work your balls off to, you know, for these companies and then, you know, have to be accountable to a bunch of boring, pin-pushing, you know, investors who sit about talking about metrics and PE ratios and all that crap. I can see, I can see why.

All they worry about is how much money they've got in their wallet.

Yeah. Yeah. But I mean, let's, you know, we're trying to run with the idea of, well, Elon Musk, you know, does it really matter? I suppose that's the question. If he was going bonkers, would it matter? Do we make too much of the guy at the top? And actually, is SpaceX or Tesla really successful? Because actually, they've got really good engineers and they're doing, they've got a fantastic product and, you know, the thing they're doing is valuable. That's the question, I think, we want to address is should we, should we care about him as a person? Maybe. Should we care about him in terms of the profitability of the companies? Well, that's what we want to talk about, I think. So, let's talk about it. Well, it's really hard, actually. So, there's a lot of stuff written in the world of, you know, business schools and so on about the influence of management teams and CEOs and all of that kind of stuff. And it's actually amazingly difficult to work out. First of all, there's very little data. Obviously, a lot of really, you know, transactional data about what companies do is commercially sensitive. You get a kind of high level, you know, accounting data and stuff for public firms. There's a bit more of that. But it's very hard to work out what individuals are doing to that. And then you have all of these problems about the fact that, well, actually, all of the things you might want to test for are all very highly correlated. So, for example, if you were going to say, well, is it the case that, you know, that when you have a, you know, a company that's starting to make losses, you know, they are going to be more likely to fire their CEO. So, you can't say, well, let's look at the CEOs that are fired and assume they're the bad ones because getting fired is correlated with losses. So, how else do you, how do you go about measuring the quality of a CEO? It's very, very hard. Because, you know, it's very hard to distinguish between, well, they just got lucky. And, well, they're a really good CEO. It's a similar problem with trying to measure how good, you know, football managers and stuff are. But anyway, people have found ways to do it. People have built, you know, data sets. They're all, none of them are hugely comprehensive. They tend to be quite bespoke. There was one interesting one I looked at where they looked at CEOs who had died or who had had family members who had died. Now, CEOs dying, that's pretty much random. It might be correlated with, for example, how stressful their job is, which might be correlated with how well the company's doing. But by and large, dying is pretty much a random event. So, that's perfect, really, because it means you can, it's not, the fact that they've gone isn't correlated with anything else about the company. And so, for that one, for example, yeah, the conclusion was, and in fact, the conclusion of most studies. Makes a difference. It makes a big difference. Oh, really? CEOs are important. Or at least, let's say it makes a statistically significant difference without necessarily saying it's big, which I have to say, I found very disappointing. I was really hoping that it would be the case that CEOs don't matter at all.

So, just to clarify, the study, the research was, well, what happens to a company when a CEO dies?

I was just giving that as an example of something innovative someone has done to try to test for. You know, in a way that isn't going to be confounded by the data. But there's other studies, you know, people have, I looked at studies from India, studies from China, certainly plenty of studies in the US. And yeah, dating back in some cases, 40, 50 years. And pretty much, conclusion is, yes, they make a difference.

Okay. Peter? Yeah, building on it, the slightly different take, there was a study I saw mentioned in the Harvard Business Review by Russell Reynolds Associates. I don't know who Russell Reynolds is, but it looks like a think tank in the States somewhere. And they were trying to, they were trying to investigate the sort of psychological features of CEOs and map that to success. It was pretty subjective because they, these CEOs understudy, they couldn't sit them down and give them a psych test to work out what the personality was. They're doing it all subjectively, sort of through proxy information. And their measure of success of the company were fairly crude things like the profitability and the profit and loss figures and things like that. But they found generally that it seems that the sort of what you think makes a good CEO in terms of like being extroverted and dynamic and bright and fun, map quite well to what, to their findings.

Yeah. And I think if you do a bit more back of the envelope calculations on, you know, the size of a Fortune 500 company, which, you know, on average, they would have something like, let's say, tens of billions of dollars worth of sales. 10% of that can be a lot, right, can be a billion dollars. Now, CEOs, that's going to be a big company, right? But CEOs, on average, get paid quite a lot. They get paid, on average, I think, something like $10 million in the US. Weirdly, I also found a survey that said that most people on average, people on average think that CEOs get paid a million dollars a year, and 75% of people think they're overpaid. Well, I mean, what if they found out what they really earn? But the point is that they're probably not overpaid if these findings are right. See, actually, you know, obviously, the bigger the company, the more the CEO ought to be getting paid. But if they're a good CEO, you know, they might quite rightly be able to demand, you know, something in the tens of millions of dollars, possibly higher, you know. So yeah, so that's pretty much sort of, yeah, the orthodoxy in the business press is, yes, CEOs do matter. They're not the whole story, but they do matter a bit.

Okay, so look, we answered this, then. The answer to our question was, I mean, the question was, do CEOs matter? That was the question. Looks like the answer is, there's various research that looks like, yes, they do, to a degree. Okay.

Yeah. So, well, we... Podcast done? Well, there's a question about whether or not they, how we know. Right now, this is a much harder question. We know that CEOs matter. What we don't know is how to be a good CEO. So we haven't found the recipe. And in a way, if we knew that, then we could, you know, we could pay CEOs exactly what they're worth.

We could set up a CEO school and just churn them out.

Well, aren't they cool? You know, that's business school, isn't it? And I know when you do your MBA, it's not always all about being a CEO, but it's, you know, kind of about that.

Peter, I want to hear from you. I mean, Well, yeah, I mean, I think, I mean, I never did, I haven't done an MBA. I think the MBA courses are probably a lot of like other sort of social sciencey type courses where you learn a lot of kind of pseudo scientific theory and what the latest models are for and what the latest of checklists for a good CEO might look like. But I think what might be more fun is looking at caricatures of bad leadership, and using that as a potentially as a sort of blueprint for how not to behave, and therefore, by extrapolation, how to behave. So, I mean, the thought occurred when I was reading about poor old Elon, it occurred to me that he's starting to behave a bit like Gavin Belson from Silicon Valley. You know, he's sort of, he's fueled by some insecurity, paranoia, and self-doubt. And he's sort of going flying off the handle and saying things without really considering them. And that's a really, that's a fantastic character in that TV series. And if you more or less did exactly the opposite of what he does, that's the sort of guy you'd want to work for. And do a Google search of what makes a good CEO, and you get these BuzzFeed type lists, and there's usually five or 10 things to do with. But it's basically just being a decent all-rounder who's truthful and is good at communicating and getting the point across the people who work for you, and building their trust.

But also, I think, well, certainly, these days, let's say, when people aren't, you know, companies are increasingly not, you know, amalgamated oil, and, you know, and plastic com, and things like, you know, these big multinationals where they're just churning out one thing that's successful. Corporate entrepreneurship is, you know, it's increasingly something people talk about as something that CEOs can be instrumental in fostering. So this is giving people the license to take more risk, and giving people space and time and resources to experiment, and not to punish failure, you know, to encourage experimentation and those things. I know that's something which people have tried to look at, and certainly pointed to companies like Apple and Google, you know, and Facebook, and to an extent companies like Tesla, and, you know, have said the reason that they're successful is that they do do that. They, you know, the CEOs, personally, possibly, in some cases, because they come from that sort of tech and engineering background, and they know what the constraints are, that they encourage people to do the same, you know, to be experimental. And so I think that the flip side of that is that what you don't want is CEOs who are overly controlling, who are, you know, prone to micromanagement, you know, who feel like they are delivering a solution rather than giving people the means to find the solution, and so on, and those sorts of things. Who embezzle. Yeah, and if you think about... Well, we don't want that. Quick, on lists of the... I'd actually looked up who were the worst CEOs of all time, and a good and fair wadge of them, actually, were fraudsters. You know, so there's Ken Lay, Enron, of course, Chuck Conway, Kmart, and he was, you know, again, it was going bankrupt, and he hid that through creative accountancy. Bernard Ebbers, WorldCom, another fraudster. So, you know, I guess that's... This is... Why do people... Why do CEOs feel compelled to encourage fraud? Well, it's obviously some... You know, they're very keen to be seen to be adding value, and they're terrified of looking like they're not, which I think really just points to the fact that it's actually quite hard to tell how good a CEO is, certainly at the time. Even though we know they matter, as we've said, we also can't really tell which ones are good at the point you have them. You can only tell when they've died. But there are a few others. There's people like John Scully, who is famous. I think... Have you heard of John Scully? No. He's really only known for one thing, which is that he got the board of Apple to fire Steve Jobs. And then their product design went down the toilet, and they had to get him back. But yeah, so again, I think the conclusion would be, well, we know they matter, but we're not quite sure how and why.

Okay. We're close to finishing up. Question I want to ask you is, do you think you would be a good CEO? Peter?

I don't think I would. I don't think I've got the breadth of experience of business, and I think I might have too much of a reliance on, give me the facts, give me the data, when in fact, I think a lot of decisions you have to make in big business aren't like that. You have to go a bit more sort of intuition. And I think I might be... I think I might have decision paralysis, because I think there's just a bit more information I could get, just wait another couple of days, and probably miss out on opportunities.

Peter's a natural chief engineering officer, you see. Always bringing problems, never solutions.

And yourself, Nick?

Well, I don't know. I've never done it. I have a feeling I'd make a better CEO than I would a manager. Now, I've been a manager. I've led teams in the Ministry of Defence. And apart from the fact I don't really enjoy it, I don't get any particular joy out of managing people. There are some people who love that, right? There are some people who like seeing people develop and grow and fostering their... I'm not interested in any of that. I just want them to do the thing that they're meant to do. And I try... My approach was really to try and make people realise why what they were doing was important and exciting, and then leave them to get on with it.

Problem is, it never was.

Well, yeah. Well, you know, and so I think... I feel like actually CEOs aren't actually necessarily the same as managers. You can have a CEO who's kind of a figurehead, and he's excited about the thing that the company does, and he's a sort of... And I feel like I'd probably be better at doing that, to be honest. But would I change places with Elon Musk? God, no. I mean, this is what I mean by saying I'm seeing where he's coming from. He works about 20 hours a day, and he doesn't seem to have any free time. Any free time he spends thinking about new ways to design batteries and stuff. And I just couldn't cope with that. I don't like being constrained by other people. And of course, as a CEO, that's all you are. You're accountable to the board, you're accountable to the workforce, you're accountable to billions of people, and I can't be doing that.

No. I don't think I'd be a good CEO. I think I'm a bit lazy, and I'm not very organised. But I think I'm good at communicating with people. Yeah. But I could be wrong about that as well, I don't know. But no, I think I'd be... I can imagine you as the guy with the

clipboard, who comes around and sort of delivers messages from the CEO in a nice way. You know, like you just had a meeting with the CEO, and he said, what the hell's going on in L division? And you go around there and say, I just had a chat with, he's really excited about what you're doing. He thinks that really, you should probably be doing a bit more of

this. I can see you being that guy. Yeah. Presenting things in the best possible light and saying, look, 40% of people are being rated redundant, but hey, it's okay.

So we've got Nick as CEO, Fraser's chief operating officer.

No, no, no, like head of comms, let's say.

Head of comms, okay. And I'm chief information officer or chief technology officer.

You're CTO or something, yeah. Hey, we've got a company right there. Boom, let's do it. What could go wrong? Okay. All right, we'll wrap up there. Thank you, gentlemen. Thank you as always. Yeah, you've been listening to the Cognitive Engineering Podcast with myself, Fraser McGruer. I've been here with Peter Coghill and Nick Hare of Aleph Insights. And until next time, goodbye.