Is there a way to identify risk-seekers among CEOs – and better still, ones whose risk-taking is lucrative rather than disaster-courting? The two US academics whose paper I have just finished reading think so. By examining the track records of 3,110 CEOs who have taken office since 1991, they determined that 179 of them were “risk-taking”, a term that they use interchangeably with “sensation-seeking”. (I am not sure I like the sound of a “sensation-seeking” CEO; “sensation” is a word I associate with things like 800 thread count bed sheets, or eating chocolate, rather than managing large public companies.)
The academics – Matthew Cain and Stephen McKeon – go on to argue that their risk-taking chief executives can also be associated with pushing through value-increasing acquisitions during their periods of office. This clearly makes them stand out, for, as any student of M&A, and rather too many shareholders will tell you, many acquisitions do not increase the value to the shareholder.
So how did Cain and McKeon manage to identify these value-building, risk-taking CEOs? They scoured the records of the Federal Aviation Administration and identified all the CEOs in their sample who both hold a pilot’s licence and live near a major airport. As someone who holds a private pilot’s licence and lives within striking distance of an international airport, I was more than ordinarily interested by that. In other words, these CEOs fly for pleasure and for the thrill of it, not because they live miles from any decent airport. So the desire to fly one’s own aeroplane signals that here is someone unafraid to seek out risks.
My company does not put me in the same league as the CEOs examined by Cain and McKeon. But their report did spur me to review my own M&A record. In the seven years I have owned my company, I have only ever tried to buy one other company. Buying it would certainly have amounted to risk-seeking activity, for it was larger than us and far better known. I was pretty determined but, even so, it took me a year to persuade the owners of the other company to agree in principle to sell to me.
Two weeks after we had shaken hands on the deal, one of the vendors called me. He had something he needed to tell me in person. It couldn’t wait. It couldn’t be on the phone. He had to come and see me, not the other way round. He rushed into my office looking very embarrassed. They were pulling out, he said. Why? Because, after consulting with people who had known me for many years, they had decided that I was too strong a personality to work with.
After a year of negotiating with me, surely one of the easiest people to find out about in London, and to come to this conclusion two weeks after shaking hands on a deal? And as for a strong personality, I don’t know anyone who leads a business who doesn’t have one. My immediate conclusion was that I had had a lucky escape – they were too weak for me to work with.
So, I don’t have much of an M&A record against which to test the PPL theory. But I suppose I have bought my own company, which was a risk, and its worth has increased, so Cain and McKeon may have a point.
Two other observations on the research. First, I am astonished at how many PPL holders there are among CEOs in the US, and also how well-qualified they are – lots of instrument rating holders, 29 commercial pilots and even 12 with their ATP (airline transport pilot certificate). When do these CEOs find the time to get, and maintain, all these qualifications and still build shareholder value? I have yet to find the time to do my IMC (instrument meteorological conditions) rating.
Second, I take issue with the study’s conclusion. It suggests that companies seeking CEOs could, in the absence of a PPL, examine driving records for evidence of risk-taking. Really? I have three points on my licence for speeding. Perhaps that is a sign that it is time to have another go at an acquisition.