Great CEOs Must be Either Technical or Financial

I am struck by a major disconnect between the stories of real-life CEOs and theories of leadership. The theories of leadership never seem to talk about necessary expertise in running companies. Most of the thinking seems to revolve around people skills.  Two skillsets in particular, financial and technical, are barely ever talked about.  Yet, when you read the actual stories of famous CEOs and business leaders, you realize that invariably they had at least one or the other. In rare cases, both. And we're not talking about ordinary skill levels. We are talking exceptional on one or both of those dimensions. Equally, a lot of them have famously lacked people skills.

If they only had people skills, they've generally been forgettable CEOs who at best kept the ship sailing on a straight course, between more active navigator-CEOs. At worst, they've buried their head in the sand with respect to important environmental developments, and let successors deal with the consequences of their not-leading.

This goes way back. The first CEO in the modern sense, Cornelius Vanderbilt, was intensely technical in the first (steamboat) phase of his career. He captained and designed a lot of his own ships. In the second, railroad phase of his career, he was intensely financial, one of the first genuine masters of Wall Street. In both phases, he was something of a jerk. He had people skills, but they were of the sociopath-manipulator variety, not the empathetic variety. Rockefeller, another great historical CEO was more financial than technical, but he still knew the intricacies of oil technology inside out.

And it's only been getting more pronounced. Successful modern CEOs rely ever more on either technical or financial skills to inform their leadership.

Fast forward to today, and as a recent insightful post pointed out, even the "non-technical" members of famous founding pairs like Gates/Allen or Jobs/Wozniak have been extremely technical. They only looked non-technical compared to their even-more-technical partners. And with companies like Amazon, Google or Facebook, well, need I say more? (Bezos in particular is interesting, since he is among the rare CEOs who has both technology and finance skills).

Why Leadership Theories Undervalue Non-People Skills

Most leadership literature dismisses technical and financial skills as either unnecessary (i.e., delegateable) or something every candidate for the top job possesses, and therefore is not a meaningful differentiator. This is manifestly not true.

Equally, they like to pretend that people skills are absolutely essential. This again is demonstrably not true.

CEOs who lack both technical and financial skills (often those who rise up through the marketing or sales ranks for instance) rarely pull off bold strategic moves. If they are lucky, they cast the right people for roles around them to not mess things up, and steer a straight course in a strategically unsurprising direction. Wall Street loves them because they are so predictable and, in a stock-price-management sense, completely house-trained. They can be expected to play by the Wall Street quarterly-earnings rules without a whimper.

These CEOs are often greatly loved by employees and customers and are fantastic for morale and culture. Since people skills are the only skills they bring to the table, they exercise those skills to the hilt.

But Wall Street, employees and customers loving you does not equal a smart business.  If a CEO is keeping all three constituencies happy, it means he/she is not actually doing his/her job.  This is not a true leader, but an over-promoted manager-steward for easy times.

Equally, people skills are not necessary. Some of the most famous and effective CEOs have been (let's face it) complete jerks. In fact, jerkiness seems to correlate well with strategic boldness.

Which brings us to technical and financial skills. Why these two? Why not sales or marketing or other functional disciplines?

It is because great CEOs do strategic steering for the long term, even at the expense of annoying Wall Street, employees or customers (or all three).  And strategic opportunities usually arise either from technological or financial developments. People-oriented functions like marketing, sales and HR are timeless functions in that sense. People haven't really changed much in millennia at a fundamental level. They only change superficial behaviors when technology changes.

The stakeholders suck it up and take the punishment because they know the CEO is doing what he/she was hired to do: actually leading. In a sense, they know they are being held hostage by the undeniable financial and/or technological talents of the CEO.

What does "actually leading" mean? It means steering in response to strategic opportunities rather than charting a straight course between greater  predecessors and successors.

Here A. G. Lafley's definition of the job of  a CEO is useful: to interpret external realities for the company. I interpret this as being a master of the landscape, alive to strategic opportunities and with the boldness and competence to change course when it makes sense to do so. If you are not doing this, you are managing, not leading.

Technological Skills

Technology skills do not necessarily mean hands-on skills, though they can arise from hands-on experience. It means simply understanding the technological state of play in the environment in a way that you can make exceptional decisions.

But the skills do have to be exceptional, even if they are not hands-on.

Why? Because technology changes suddenly expand the strategy canvas and offer new ways of doing old things, or entirely new things to do. It's like a chess board suddenly acquiring new columns and rows, with new pieces that move differently. The leaders who read the new game faster and better than competitors get ahead.

The chess analogy suggests the nature of the understanding required. It has to be metaphoric and conceptual rather than literal. To take my current pet subject Big Data as an example, you don't need to know how to personally set up a Hadoop cluster (though that can of course help). You need to understand how the Hadoop piece "moves" on the chess board in relation to other technologies like in-house powerful servers or cloud computing.

Financial Skills

Financial skills are more esoteric. In general CEOs are in an adversarial relationship with the investment community. If they are sincere about their jobs, they are in it to build long-term value in enduring companies that create real, as opposed to paper wealth. Investors generally want to simply create preferentially-predictable-to-them stock movements that they can take advantage of on their own personal wealth-building schedule, which has nothing to do with the fundamental time constants or market tempo of the company.

This means that to break the game of house-trained CEOs (stock price expectation management, in return for narrowly personal rewards) and do greater things, CEOs have to understand finance and economics even better than Wall Street, and beat them at their own game in order to pursue opportunities that may have high immediate costs but are great in the long term. They have to work around "shareholder value maximization" nonsense and boards that dutifully parrot that line.

Going back in history, Jay Gould, the most famous robber baron, was the first CEO who led with finance rather than technology. Since then, during times of economic turmoil, generation after generation of finance-first CEOs have come and gone.  These are the CEOs who have navigated primarily financial and economic changes like deregulation, globalization and outsourcing. Their tenures have been marked by a capacity to refactor operations for new conditions even without technology changes.

Making Stakeholders Unhappy

Finally, the absence of people skills is actually an equally important qualification. People who are good with people usually want to be liked, admired and praised. This means they avoid tough decisions. Often this is accompanied by some sort of rationalization about long-term customer loyalty or employee retention.

But firing customers and abandoning old markets in favor of new ones is often as important a business imperative as staying a course in a market and building long-term customer relationships. Wholesale layoffs followed by new hiring in a different area are also equally real things. Empathy at best is a minimum-threshold type constraint here, not part of the function you need to optimize. On the shareholder side, sometimes you have to fire a class of investors using stock buybacks or even taking a company private.

It is a harsh truth to humanists, but people are not the center of the economic universe. Other things matter. Technology breakthroughs matter. Economic turmoil matters.

Being a jerk and a sociopath can be useful here. This does not mean being stupid. It means not letting empathy over-rule every other consideration. Of course annoying customers, employees and shareholders has its costs. But nobody said pursuit of new opportunities is supposed to be an entertaining ongoing party.

I am a writer, independent researcher and consultant, probably best known for my blog, I am the author of a book on decision-making, "Tempo." My consulti...