The Patient CEO

Article excerpt

"Patient money" is the term used to describe an investment that yields little or no return for a long period of time, but holds the potential for a significant payout down the road. It often describes purchasing land, buying a tree farm, or investing in small-cap growth stocks. Modern-day venture capitalists epitomize patient money: A typical venture-capital fund is set up to be liquidated in 10 years; few, if any, returns are expected for at least five years.

In the corporate world, patient money is poured into basic research; into large-scale product and market development programs; and into acquisitions of smaller, technologically advanced companies. The U.S. pharmaceutical industry has attained world leadership through sound application of this patient-money principle.

However, these days, it seems the pressure is on CEOs to be impatient. Cut costs to the bone to show a quicker, higher return on investment. Speed up all processes that lag behind the cue. Spin off, scrap, or sell units that don't contribute to this year's or next year's profits. Never have a down quarter, because you will be punished for it.

The forces that press for impatience are out in full strength: the so-called relational investor with a large chunk of stock in your company who may have quite a different timetable than the one you set in your strategic plan; the financial analyst who volunteers forecasts for your next quarter that are higher than yours; the very "pay-for-performance" incentive plans you established to appease the compensation critics. All CEOs feel the inexorable pressure to achieve results quickly.

As CEOs, we tend to be impatient with our people. We want them to accept instantly an organizational restructuring, a total-quality-management program, a new computer networking system, an optional benefits schedule, a changed executive compensation plan. Forgetting that some--or most--of our people need time to comprehend and absorb a major corporate move before they can wholeheartedly embrace it, we push too hard, too soon for results.

This is a lousy way to run a railroad. We hurry so much to do things in a cheaper, faster, and more mechanical way that we sometimes forget our basic objective is to build the business--and the fault often lies with CEOs and their boards as much as with outside pressures. …