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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

« Chemistry On The End of DNA | Main | Options And Suchlike »

August 23, 2013

What's a CEO Worth?

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Posted by Derek

In the case of Microsoft's Steve Ballmer, the stock market appears to be saying "About minus 18 billion dollars". As Alex Tabarrok notes here, that sort of puts average CEO compensation in perspective. . .do we have some bigwigs in this business who could do as much for their shareholders by following Ballmer's example?

Comments (17) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Curious Wavefunction on August 23, 2013 12:05 PM writes...

This is because investors are aware of Ballmer's weaknesses. Is that the case for most Big Pharma CEOs?

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2. Bill Gates on August 23, 2013 12:13 PM writes...

@ 1. Curious Wavefunction

What are his weaknesses?

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3. Anonymous on August 23, 2013 12:38 PM writes...

Pick any pharma CEO who thinks he can solve his company's innovation and sustainability issues with M&A deals, divestments, R&D cuts, restructuring, reorganization, etc., then you know he's worth as much as a hammer to fix a computer.

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4. SnupSnus on August 23, 2013 12:42 PM writes...

Think John Lechleiter could do enormous service to his shareholders & his company.

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5. Anonymous on August 23, 2013 1:00 PM writes...

CEOs aren't paid too much, just the wrong people are CEOs.

It should be ME!

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6. Anon on August 23, 2013 2:47 PM writes...

Balmer can much more easily pick the direction of his market than his pharma equivalent. He can say "build X type of phone, Y software, Q service, etc." In pharma you have to both an external market to understand (what insurers will cover) but also an internal market (understanding the biological picture of the disease and the pharmacology/chemistry behind how to address it). That's why IMO Regeneron's approach of making Yancopoulos and Schleifer near equivalents in pay and responsibility has done so well for them.

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7. biotechtoreador on August 23, 2013 2:53 PM writes...

"Pick any pharma CEO who thinks he can solve his company's innovation and sustainability issues with M&A deals"

CEOs of JAZZ, QCOR, VRX, LGND: returning handsome profits to investors while doing no (or hardly) anything but M&A. Can't say how long the run can last, but not showing signs of slowing down.

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8. Anonymous on August 23, 2013 3:29 PM writes...

@7: How does buying companies and making money by cutting jobs help with innovation and sustainability?

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9. Hap on August 23, 2013 4:15 PM writes...

@8: They don't - they're just buzzwords that they have to say so that they can pretend to themselves, investors, and employees that they aren't looting and running, and that this is really a new well-thought strategy for making their companies better. When a CEO says that, he (mostly he) either 1) doesn't know what he's doing, and shouldn't be there, or 2) is lying for someone's benefit, and chances are, it's not yours, in which case, he probably shouldn't be there.

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10. Fred on August 23, 2013 9:27 PM writes...

I hate to defend an ignoramus like monkey- boy Ballmer, as he is known in tech circles (Google it if you don't believe me), but he was'nt dealt much of a hand. Gates left with Windows in a shambles-- their competition was UNIX (LINUX or OS X, take your pick)-- and Windows was long-in-the-tooth chickenwire and spit. It still is; Windows has still not transitioned to UNIX. Instead, they've focused on abortive attempts to find some kind of cutesy "look" to make their OS more appealing (usability be damned) such as their latest issue, Windows 8.

Sure, he could have knocked heads together and got MSFT working on the core OS instead of the frosting, but that would involve turning a big ship, frightening corporate IT dudes who make a living fixing Windows disasters, and getting prima donna nerds to listen to him. Better to ride the storm and take the package.

Permalink to Comment

11. RB Woodweird on August 24, 2013 10:38 AM writes...

Who sets the CEO compensation package?
The board.
Who nominates members to the overpaid cushjob board positions?
The CEO.

Permalink to Comment

12. Anonymous BMS Researcher on August 24, 2013 10:53 AM writes...

Two words: Peter Dolan

Permalink to Comment

13. Biotechtoreador on August 24, 2013 1:04 PM writes...

Actually, shareholders can nominate anyone to serve on board of directors, in addition to voting for BOD members. Shareholders (I.e. anyone who has an Ira or 401k) get the BOD and CEO they deserve.

@8, m&a sparks innovation by other companies that them get exploited by acquirer. It's a tough business, but guys like Pearson and Higgins do it well.

Is ther any reason to think these acquisitive companies are not sustainable? Track record, so far, is pretty good. Lots of so so pharma assets out there to polish and resell for a profit.

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14. Another former BMS on August 24, 2013 10:11 PM writes...

# 12. Yes, Peter Dolan, aided and abetted by Andrew Bodnar, Fred Schiff, Richard Lane.

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15. B on August 26, 2013 10:50 AM writes...

@2: Among other things, he was supposedly a big proponent of Stack Ranking (http://en.wikipedia.org/wiki/Vitality_curve)

This is find if you are reorganizing a bloated company, but if you make it a long-term solution and not a temporary effort you dramatically stifle innovation.

The problem is that it forces you to rank your employees and place X% on the bubble of termination. Again, if you're bloated this makes sense..but in MSFTs case, this meant that even if they brought in the 4 best programmers in the field, 1 of them would be on the bubble and facing termination. Why work there, then? When you would be a superstar at Google and considered an 'underperformer' (relatively) at MSFT? You don't, you leave.

Ultimately, my understanding is that it has led to a lot of stagnation at MSFT. In the long run, they lost a lot of good people and Balmer was much more of a business guru then an innovator and didn't have the right direction for MSFT.

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16. CET on August 26, 2013 10:58 AM writes...

@15

My sense is that it also lead to a fair amount of political maneuvering and outright sabotage.

This article is a pretty good blow-by-blow of the decline, with special attention to stack ranking at the end:

http://www.vanityfair.com/business/2012/08/microsoft-lost-mojo-steve-ballmer

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17. Philip on August 26, 2013 12:25 PM writes...

@10 Fred, that is Dancing Monkey Boy.

If Microsoft embraced UNIX, Linux or something like BSD, that would take away all of their innovation. Remember Microsoft perfected IBM's business method of Fear, Uncertainty and Doubt (FUD). I am sure that if business methods patents had existed back in the 60's, 70's, 80's and 90's, IBM would have a patented the technique.

Microsoft did invent (at least to my knowledge) the business method of Embrace, Extend and Extinguish (EEE). It will be interesting to see if a new CEO can push EEE to new highs or will Microsoft have to come up with their second invention.

I guess Microsoft has become a patent troll, so maybe that is their key to future success.

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