The Mentality of Entitlement

[Parsad]

What makes someone perceive their sense of worth being far superior to another?  Or that their compensation and benefits justify being completely out of line with common sense and simple decency?  I found whether you are the a large corporate juggernaut like Jack Welch, a Buffett wannabee like Biglari, or even a executive of a small microcap company, your sense of normal becomes incredibly warped!

 

Just joined the board of a company we've invested in, and I'm having to tear apart compensation packages and draw up new agreements for everyone.  Amazing what people think "adequate" or "reasonable" are even at a very small company...a lease less than $1,000 per month is unfathomable...a Hyundai...are you kidding me?!  Even more surprising is the reaction from other executives and directors, who aren't nearly as nauseated because the collegial atmosphere of a board numbs objectivity. 

 

But it's amazing what people will excuse.  You see it here all the time with Biglari Holdings.  Successive attempts to thwart "no" votes to a compensation plan, meant that that you find another way to attain the desired compensation plan.  Buffett and Munger acolytes barely show scorn to such behavior, as long as their own pockets are as deliciously lined in gold, and the paraphrasing of Buffett sounds accurate!  Contemptuous behavior, but becoming the norm even in such enlightened circles. 

 

Very disappointing!  Means that trying to rationalize with boards and executives over this is only going to get tougher.  Cheers! 

[randomep]

 

Wow, Prasad must be peeved to rant at midnight! :))

[ASTA]

I agree Prasad only way a investment company( should be structured is the way you and a handful of hedge funds have it 3 people max working in a Hedge fund more then that is just a social club of over spending and money garbing. I have fixed this problem myself too one employ me no fun but at least rewarding(or heart breaking) financially and learn a ton about the world at the same time  :D

 

Plus one great insight in life from Alice Schroeder reddit

 

Apart from books I think you should know what is going on that will affect the future. Not in the sense of forecasting. But for example, I was at a conference and asked a successful entrepreneur, "How do you get ideas to start businesses" since he had started quite a few. His answer ... "I look for big companies that have a lot of employees, and I figure out ways to get rid of the employees."

This sort of thing can take you aback, but it is worth knowing, which is one reason I stay in touch with the tech world.

 

This is the future :D

   

[Andy Dufresne]

 

Wow, Prasad must be peeved to rant at midnight! :))

 

Parsad is absolutely right, and in this case, WEB is also in the wrong ... consider he admitted during the KO compensation debacle that in his many years on 17 Boards he never ONCE saw a compensation plan NOT approved ... I felt sick when I heard this ... makes me admire Richard Kinder all the more

[giofranchi]

 

Wow, Prasad must be peeved to rant at midnight! :))

 

Parsad is absolutely right, and in this case, WEB is also in the wrong ... consider he admitted during the KO compensation debacle that in his many years on 17 Boards he never ONCE saw a compensation plan NOT approved ... I felt sick when I heard this ... makes me admire Richard Kinder all the more

 

Yeah! Maybe… But you must be realistic and pragmatic:

Is BH a wonderful platform for doing business? Yes, it is.

Would I like to pay Mr. Biglari somewhat less? Yes, I would.

Would I quit a wonderful platform for doing business, because I think Mr. Biglari is paid too much? No, I wouldn’t.

 

Perhaps, I have simply misunderstood Sanjeev’s point… ;)

 

Gio

 

[yadayada]

well I dont have experience with those type of things. But I do have more experience dealing with narcicists then I would like. With these type of people, you do them 3 favors, and when they do you a small favor back, they think you owe them. Incredibly self centered people love themselves so much that they irrationally think they deserve everything for doing very little. It is a disease.

 

Normally empathy takes care of this kind of thing. Someone does something for you, you have the feeling you need to do something back. But people with narcicism dont have that impulse because they lack empathy. They are wired differently.

[Parsad]

Normally empathy takes care of this kind of thing. Someone does something for you, you have the feeling you need to do something back. But people with narcicism dont have that impulse because they lack empathy. They are wired differently.

 

True!  But here's the rub.  The three examples I gave, in all three cases, the executive made enormous sacrifices for the company at some point and saved it...or in GE's case, restored it!  But because of this...the possibility they could have nothing if things went the other way...the company becomes their own little fiefdom. 

 

What is the differentiator that decides someone like a Buffett (Solomon's) or Watsa (Fairfax) or Sinegal (Costco) avoids that type of emotional entitlement, while others suddenly feel their worth has somehow increased to 20% of the company's intrinsic value? 

 

Why is Mohnish now going to work for peanuts at Dhandho, while the executive I had to deal with today couldn't comprehend why a distressed company couldn't afford to pay his yacht club fees?  For all intents and purposes, both men are intelligent, reasonable and in their own ways successful over their careers.  If you met both, you would naturally assume Mohnish was the loud, brash, narcissist, before getting to know him...just his cars and gaudy personalized plates would make you think that!  ;D  While the other executive would come off as humble, quiet and personable. 

 

Yet, the finest indicator of humility would be in their compensation expectations at their respective entities...complete opposites!  Very strange how people behave.  Cheers!   

[Parsad]

 

Wow, Prasad must be peeved to rant at midnight! :))

 

Yeah, I flipped out during a board meeting today.  Just couldn't believe what people were thinking when it comes to running a business.  Nothing properly documented, yet no way anyone was going to challenge the right to company perks!  I don't know how Buffett sat in meetings and simply abstained from voting on compensation packages he didn't agree with.  Maybe he just got tired of arguing. 

 

I explained that my job as an independent director, a fiduciary for shareholders, lies at the opposite pole from the executive and his perks.  My responsibility is that every dollar spent, be it on salaries or operations, is spent in the most fiscally restrained way possible.  Without contracts saying we owe these "perks", they were going to get cut.  Crazy how many companies start doling these things out on verbally-intended or pseudo-acknowledged approvals.  Yet no backup!  Cheers!

[Packer16]

I think the real question is what is the CEOs role?  The correct role is steward not owner.  The implication for ownership is you can do with it as you will independent of consequences.  A steward is responsible first to grow the value of the firm under management not for himself but for someone else and let the someone else provide rewards commensurate with the value added.  The looking out for number one baloney really leads to destructive behavior especially when it is present at the CEO level because it becomes the culture and folks are focused on makng sure they get there due versus doing what is good for the organization.

 

Packer

[stahleyp]

I think Great Depression Part II would work wonders for the entitlement mentality.  :-X :P

[yadayada]

another way of looking at it is, are shareholders maybe having a mentality of entitlement that they dont want to pay the CEO's yacht club? Damn shareholders with their entitlement, they really want it all! This hard working guy put his ass on the line, and now shareholders dont want to sacrifice a small % of returns to pay for a nice car and a yachtclub?

[NormR]

Taking something away from people is always hard.  Sometimes it's better to show them the door and find someone who is eager to work at a lower rate / with fewer perks.

 

 

[Guest longinvestor]

Taking something away from people is always hard.  Sometimes it's better to show them the door and find someone who is eager to work at a lower rate / with fewer perks.

 

That would be the proper thing to do. The issue is everyone is doing it. Arguably why there are only one or two companies out of the 500 in the S&P who come close to doing this. Possibly only one, Berkshire. Would be happy to hear other such names. The entitlement thing is easy to explain but hard to implement. Like someone else posted, it will take a depression act II or something prolonged enough to change pervasive behavior like this. Maybe then we may find someone else to work without egregious largesse.

[Gamecock-YT]

I've seen it firsthand at my company. It's owned by private equity, so maybe they don't care as much (but they sure do put the screws to everything else). But we've paid out to the CEO the yearly dues for his centurion card, for his wife to decorate the office for holidays and go shopping to buy new office decor, and even pay for his dog sitter when he and his wife went on a trip to Asia, first class accommodations paid by the company of course.

[anders]

I agree with packer here "I think the real question is what is the CEOs role?  The correct role is steward not owner."

 

I once asked a CEO why he did not return the capital to shareholders when they cant find anything useful to do with their excess capital.. He responded: "why give money to strangers instead to the people here that are putting in their sweat and blood.."

 

Not much different from any owner perspective I guess... The guy building your house will always try to get out as much pay as possible, and you as the house owner will try to keep the costs down..

 

Rgds

[anders]

It could be one of the reasons why buffett like the thought of repurchasing company shares... kind of benefits both parties.. owners get value and management get value on their option programs...

[anders]

Sorry, another thing that came to mind that I never forget... The only way to change a mind that thinks they are entitled to more than they deserve is most probably a force through higher power..

 

I never forget when I watched the senate hearing of the CEOs of Freddie, Fannie, AIG, GM and from other financial institutions.. They all flew in to washington in company private jets asking for money and when senate saw this they got furious... and the CEOs had to drive home in a rented car.. lol..

 

Also, the top management at AIG got a good rollicking by a senotor when he red the bill from a Spa resort that they went after they got bailed out...

[yadayada]

I agree with packer here "I think the real question is what is the CEOs role?  The correct role is steward not owner."

 

I once asked a CEO why he did not return the capital to shareholders when they cant find anything useful to do with their excess capital.. He responded: "why give money to strangers instead to the people here that are putting in their sweat and blood.."

 

Not much different from any owner perspective I guess... The guy building your house will always try to get out as much pay as possible, and you as the house owner will try to keep the costs down..

 

Rgds

Shouldnt the role of a CEO be to think like an owner? You want him to bleed too if he wastes earnings on stupid acquisitions. Seems to be the easiests if the guy running it has the same incentive as the guy owning it? Malone being a unicorn exception of this.

[SharperDingaan]

Entitlement only prevails because shareholders permit it, & it is cheaper than more frequent C-suite replacement.

 

The more ruthless firms typically have their top 6 execs on staggered 18-24 month contracts with everything spelled out. Change the brass like the underwear they actually are, every 3-4 strat plan update cycles. Pay very well for the time they are there, grant no share options, & have no hesitation in cutting throats. Call all bluffs.

 

It means the share price is more volatile, but that is why there are option markets. There will always be a mercenary & ruthless bastard at the top, & shareholders have darwinism working for them to ensure that he/she does not overstay their welcome. Get rich by delivering the promised result, & keep it by disabling your competitors from stealing it.

 

Notable is that the approach is also a favourite of many of the worlds leading criminal organizations; where competition is often more intense, brutal, & gaming is everyday business practice. They have the same business problem.

 

Shareholders can be bastards too  ;)

 

SD

 

[merkhet]

When you're the CEO of a company, you have a bunch of people reporting to you. The board, as others have pointed out, while supposedly an authority, tends to be a social club in many aspects. In the end, you generally find that most of the people who surround a CEO tend to kiss his or her ass.

 

It's no different than a smaller version of becoming a celebrity. (When hundreds of thousands of fans spend time fawning over you, it's hard not to lose your head.)

 

It makes those people who can resist such things all the more special.

[oddballstocks]

Sometimes these things are hard to reconcile.  You have public company CEO's taking as much as possible with little ownership.  Then there are private company CEO's who build the companies themselves and pay themselves pennies and watch costs like a hawk.  The private owner can 'take' as much as they wish without anyone raising a fuss, yet they don't.  And the public CEO, who's a hired manager shouldn't be able to take anything yet they do.

 

There are CEO's out there who do care about shareholders.  A CEO of a small local public company I know is like this.  He mentioned to me coming in on a Saturday morning to fix a toilet in the bathrooms that was leaking.  He said replacing a toilet was simple and he'd rather save the money instead of hiring a plumber.  Behavior like this is rare, but does exist.

[augustabound]

Not much different from any owner perspective I guess... The guy building your house will always try to get out as much pay as possible, and you as the house owner will try to keep the costs down..

 

I built custom homes for a living and I would always try to save people money where I could.

Contractors are usually beaten down on costs by the home owners, changes done without a change order document (in the end our own fault).....................The home builder rarely gets the quoted amount at the end of the job regardless of how many extra hours are put in above and beyond...................

 

And then there are people who believe contractors are out to screw everybody. If I had a dollar for every time I heard, "all contractors will screw you" or "all contractors are crooks". I wouldn't need this board for investment wisdom, I be set for life.

 

Good contractors get the short end of the stick.  Poor contractors find ways to bilk money from customers any way they can. (And yes, I know there are more of the latter in this world)

 

Rant over.  Sorry, it's a very touchy subject for me.  ;D

[Packer16]

Yes a steward thinks and acts like an owner as his compensation is in part based upon the performance of the business.  My issue is when the CEO acts like the owner of many private businesses feels the company is his private fiefdom that he can what he wants.  This is not the case.  The CEO is hired by the board of directors as fiduciaries of the shareholders.  The real issue is with the BoD who has neglected there fiduciary responsibility.  The CEO also has a fiduciary responsibility beyond making himself wealthy and I think that is part of the problem.  We have too many folks trying to get rich quick with no one telling them no and too few fiduciaries. 

 

Packer

[SharperDingaan]

Change the brass like the underwear they actually are

 

..... hence the Jockey brand !!!!

 

SD

[oddballstocks]

Not much different from any owner perspective I guess... The guy building your house will always try to get out as much pay as possible, and you as the house owner will try to keep the costs down..

 

I built custom homes for a living and I would always try to save people money where I could.

Contractors are usually beaten down on costs by the home owners, changes done without a change order document (in the end our own fault).....................The home builder rarely gets the quoted amount at the end of the job regardless of how many extra hours are put in above and beyond...................

 

And then there are people who believe contractors are out to screw everybody. If I had a dollar for every time I heard, "all contractors will screw you" or "all contractors are crooks". I wouldn't need this board for investment wisdom, I be set for life.

 

Good contractors get the short end of the stick.  Poor contractors find ways to bilk money from customers any way they can. (And yes, I know there are more of the latter in this world)

 

Rant over.  Sorry, it's a very touchy subject for me.  ;D

 

The great thing is being honest and returning phone calls is a great starting point for building a great reputation in the business.  I have a good friend who's brother is a contractor.  He returns phone calls, shows up on time and is extremely professional, he has an enormous client base and is doing well.  Another friend's father started a home building business.  Same story, diligent, always honest and took care of customers, he now has a thriving company and is quite wealthy.

 

There are customers who are attracted to those traits, enough that a sustainable business can be built.

 

I remember calling to get quotes on having a driveway redone.  I called 10-11 companies, three called me back.  Maybe the others were swimming in money and had too much business, or more likely they just aren't versed in common professionalism.