WHO IS THE GREATEST CEO?

By David Balovich

The recent passing of Steve Jobs, co-founder and CEO of Apple prompted one of my students to pose that question during class last month. A major publication, published late last year, stated that Steve Jobs was the “CEO of the World”. Jobs, who may well have been the most visionary head of any corporation in our lifetime, was way ahead of the market and his peers, so much so that in 1986, shortly after it introduced the McIntosh computer, his own firm ostracized him and he voluntarily left the company he co-founded. When he returned Apple was floundering and it has been reported the stock value of Apple grew in excess of 1600% since his return.

Before responding with my opinion I turned the question around to the inquiring student and the rest of the class. I received several nominations. Their responses included; Jack Welch (retired CEO of GE), Bill Hewlett (co-founder of Hewlett – Packard and early mentor of Jobs), Lee Iacocca (Ford and Chrysler Motors), Akio Morita (SONY Corporation), Herb Kelleher (Southwest Airlines) and Harold Geneen (ITT Corporation). I also asked the class to define the role of a CEO. The consensus was the function of the CEO was to communicate, direct, lead and manage. After much discussion I decided I would bestow the honor upon the person who transformed a group of companies into the largest industrial enterprise the world has ever known during a period of economic instability.

The title of “Greatest CEO”, in my opinion, would go to Alfred Sloan Jr. CEO of General Motors during the 1930s’ and 1940s’. Sloan didn't just turn GM into an American industrial giant but created a true multinational corporation before the end of 1940. In fact the Germans, British, and Americans all used equipment during World War II manufactured by General Motors. Opal (Germany) and Vauxhall (British). Sloan and his staff also created modern business accounting and were among the primary founders of the American airline industry.

Sloan created what became known as the “ladder system” of auto pricing. This allowed car purchasers to upgrade their automobile purchases as they became more affluent with GM automobile brands (Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac) that never competed with each other but kept the purchaser coming back to GM to purchase a vehicle. He also is credited with creating the term “planned obsolescence by establishing the annual style changes to GM vehicles. This concept was not only copied by other auto makers but also manufacturers in other industries.

In the late 1950s Sloan wrote a memoir of his years at the helm of GM, but the GM executives then in power did not want the book published. For years Sloan acceded to their wishes; but in 1963, three years before his death, it was finally published and remains in print today, 48 years after it was first offered for sale. It is considered one of the influential texts in the field of business management and was required reading in the business school I attended.

The book is an understatement to both Sloans’ and GM's accomplishments. Conveying little of the emotions swirling in the strife surrounding GM's unionization in the 30s. General Motors, long hostile to unionization, confronted its’ workforce in the 1930’s just as Henry Ford did at Ford Motor Co. Sloan however, was adverse to the violence associated with his contemporary Henry Ford. Instead he built a covert organization that was considered one of the best in the business community for the times. However during the notorious Flint Sit Down Strike he realized that espionage, no matter how large or sophisticated, was of little value. His discussion about unions appears towards the end of the book, where Sloan credits them for working with GM management for avoiding any major labor problems for 17 years. During the 1950’s it was Charles Wilson, Secretary of Defense during the Eisenhower presidency, who made the often misquoted statement, “For years I thought what was good for our country was good for General Motors and vice versa”.

A Reticent Retelling

Sloan writes at length about a more trying time for GM and one that is often mentioned today, the Great Depression. He writes how GM created numerous committees during the depression to deal with the critical issues the company faced on a day-to-day basis – although he disappoints the reader by providing little explanation regarding how decisions were made or the logic behind those decisions. Even in his reticent retelling of that stressful period, one comes to appreciate that Sloan regarded the effects of the depression as little more than another day at the office.

One of the fascinating vignettes shows Sloan sending a memo to all GM executives saying that he believed the market for new cars had peaked, both marking the end of GM's expansion and forcing the corporation into an era of fiscal downsizing. What’s fascinating about this story is that Sloan wrote the memo long before the stock market crash of 1929.  The things Sloan seemed to be most proud of included GM's planning during a period of extreme volatility in the economy. He noted, "Although the depression did not occur all at once, the downward steps were gigantic." He then added that GM's sales fell from $1.5 billion in 1929 to just $983 million the following year.

As he relates the story, new car sales and production in both the U.S. and Canada fell from 5.6 million vehicles in 1929 to just 1.4 million at the end of the Great Depression in 1932. GM watched 72 percent of its sales melt away as profits dropped from 1929's $248 million to just $165,000 in 1932. Sloan also writes that during the period in which American banks were closing by the thousands, not only did the savings plan used by 93 percent of GM's workers remain sound, but those employees never made a run on the GM savings program like U. S. citizens did on the banks. The brilliance of what Sloan had put in place was obvious. Not only was there a complete blueprint showing how to build the corporation in good times, but that same blueprint showed management how to downsize the corporation quickly to respond in a troubled market. 

Consider this, by 1932 GM was operating at less than 30 percent of its capacity, but at no time during the Depression did General Motors lose money, contemplate bankruptcy, or seek a bailout from the government. Granted, during those years GM did not have to deal with severance pay for the workers who lost their jobs and had such benefits been commonplace in those days, GM's record for profits probably would have been less. However, at the time, the Wagner Act did not exist and severance pay was not customary. No Political Slant

It is well known Sloan was not a fan of President Roosevelt or his New Deal, and he was not happy about the passage of the Wagner Act which allowed his workers to unionize without management influence. After all, General Motors was considered to be one of the more generous employers with its’ workers wages and benefits and Sloan believed the passage of the Wagner Act was an affront to not only GM but also his leadership. He was adamantly against FDR’s Workers Bill of Rights and did not hide his true feelings when it died with the President and was not addressed by the Truman administration. He opposed the Workers Bill of Rights being implemented in Germany to help rebuild their economy after World War Two and for these reasons, I suspect, he avoids discussing politics.

We have been schooled in the belief that the economy during the Great Depression resulted in twenty-five percent unemployment, which continued until we entered the Second World War - but that's not really correct. The fact is Treasury Secretary, Andrew Mellon, moved Congress to enact the Revenue Act of 1932. This was the legislation that increased tax rates on the top-tier earners in America from 25 percent to 63 percent. Moreover, the Revenue Act was enacted during the absolute worst year of the Great Depression, one marked by a 13.1 percent fall in the nation's Gross Domestic Product. At first the Revenue Act seemed to have no impact on the severe downward slope of the economy; in 1933 the GDP fell by only 1.3 percent - but in 1934 it decreased by 10.9 percent.

In spite of the huge increase in taxes and the many bank failures, car sales rose by 300,000 in 1933 and were back up in the millions by 1935. Unemployment, which had peaked at 25 percent in 1932, would gradually decline to "only" 15 percent by the end of the decade. And for those who still believe that it took the Second World War to completely end the Great Depression, the GDP rose in every year but one from 1933 to 1941. In fact before we entered the war in December 1941 the Gross Domestic Product had already risen by a stunning 17.1 percent.

            Sloans’ comments about wages in the first years of the Great Depression said only that wages and salaries were cut to deal with the crisis. And it is reported that, nationwide, industrial manufacturing workers who remained on the job during the worst years had their earnings slashed by 30 - 35 percent. That's understandable for the times;  Lee Iacocca, head of Chrysler Motors during the recession of 1980, Lee Iacocca, testified before Congress that he had lots of jobs for his factory workers at reduced wages - but he did not have any jobs available if the wage structure stayed as it was.

Uncanny Similarities

What troubled Washington D. C. in those days - and what is left out of the "Story of the Great Depression" today - is that, having cut their expenses to the bone in an economy that from 1933 steadily improved,  by 1936 American corporations' profits were nearing their pre-crash 1929 levels. However, the majority of companies were not hiring back as many individuals as Washington had hoped for, and corporations were not increasing the wages of those who were still employed. That sounds a lot like where we are today. Those companies who adopted a two-tier wage structure over the last decade are saying today they cannot continue with two different pay structures and they are not talking about eliminating the lower level tier.

So, having installed many aspects of the New Deal - some that were doomed from the beginning and others delivering varying degrees of success - Washington found it still hadn't gotten back the near full employment the nation had enjoyed in the previous decade. This was primarily what drove Congress to pass the Wagner Act, which would allow the nation's workforce the right to form and join labor unions. The idea was that if people who still had jobs could get back their earning power from the previous decade, then retail sales would quickly follow and that would be the biggest push possible for small and mid-size business owners to hire new workers, and finally the problem of unemployment would be resolved.

Let's repeat that, because it's key and not very complex: Washington decided that if workers could earn more than what they required for their primary needs, such as housing, energy and food, then the worker would go back to spending the excess. That would be the final piece of the puzzle to ending the unemployment created during the Depression, and it was necessary: By itself the full recovery of corporate profits was not getting the job done, and they could see the indisputable proof all around them. Does any of this sound familiar to anyone? It's déjà vu all over again.

Inflation as a Good Thing?

Even in his discussion of the unionization of GM, Sloan's writing contains not a trace of bitterness. In fact he is downright proud of the wages and benefits GM provided to its workforce. While he often reminds the reader that GM workers had industry-leading benefits prior to 1929, he also states that he did not believe those additional costs were inflationary. However, Sloan was wrong: All of those additional wages and benefits were inflationary.  GM certainly had to raise the prices of its cars and trucks to cover not only their manufacturing expenses but also their largesse – and they continue to do so today. But GM was not alone. All of the other industries in America were raising their workers' pay and the costs of their goods, too. No one remembers this today, but that period of inflation in America also wiped out the financial impact of our national debt, which was a truly frightening $254 billion at the end of the Second World War: Just two decades later, inflation had made that amount insignificant.

Sloan knew that it would be difficult for GM to maintain its’ number one position as the largest company. He often said it was easier to get to the number one position then maintain it. He was always looking for ways to do things better and one of the things he did was hire Peter Drucker. Sloan invited Drucker, often described as “The Man Who Invented Management”, to audit GM and its’ management practices. Sloan wanted Druckers’ opinion as to what GM needed to do to maintain its’ position as the number one company in the world. Drucker spent two years at GM and had unlimited access to the directors, executive, managers and employees. The result of those  two years at GM was the publication “Concept of the Corporation”. It proved critical of GM policies and management and predicted that if GM did not change its’ management practices it would eventually destroy itself. Needless to say Sloan was outraged with the results and Drucker would write in his memoirs that Sloan would never discuss the book or Druckers’ findings during their twenty-year relationship thereafter. One of the unique traits about Sloan is that he never appeared to hold a grudge. Although Drucker had found fault with GM management and Sloans’ policies, Sloan often invited Drucker back to GM to speak and consult and according to Drucker, Sloan would always defend to other GM managers Druckers’ right to express his opinions. Drucker says that he met often with Sloan until his death and Sloan would always ask for Druckers’ opinion even though through all those years Sloan never acknowledged that he agreed with Drucker and not once, as far as Drucker knew, ever implemented any of his suggestions.

Alfred Sloan was a brilliant man for his time. Steve Jobs may have surpassed Sloan had he lived longer than his fifty-six years. After all he reinvented four industries; computer, music, motion picture and telephone, one more than Edison. There is no question he was an innovator and visionary. Sloan however had the uncanny ability to adapt to both good times and bad quickly and that alone makes him an American corporate legend. Sloan grew a small company into a world conglomerate during the great depression while Jobs created two companies,  reinvented the company he co-founded and changed the way we communicate and entertain.

I wonder if I will ever see the likes of their genius again during my lifetime.

I wish you well.

The information provided above is for educational purposes only and not provided as legal advice. Legal advice should be obtained from a licensed attorney in good standing with the Bar Association and preferably Board Certified in either Creditor Rights or Bankruptcy.