02 April 2007

Dr. Beyster - a Different Kind of CEO

We see a great deal reported about the differences in heads of state; less about the heads of corporations. And when CEOs are written about, they are too often written about as either villains or heroes. CEOs are generally talented people who vary wildly in their ability to actually create value or jobs. Their philosophy, policy, and strategic decisions matter. It is a mystery to me why the media focuses so much on the details of presidential candidates while generally ignoring CEOs. Anyone interested in quality of life and the future of this planet should pay at least as much attention to the various and competing philosophies of CEOs as they do the competing philosophies of politicians.

I've written quite a lot about how CEOs are the last of the monarchs. (If you doubt that, try this simple test. Publish, regularly, words that question George W. Bush's intelligence, integrity, and intentions. Note that your citizenship is not revoked. Now, assuming that you work for a Fortune 500 firm, publish, regularly, words that question the CEO's intelligence, integrity, and intentions. See how long your employment lasts.) Some abuse their power as monarchs, some try to do good work with it, and some actually try to change the role of CEO from monarch. From what little I know of his actions, it seems like we have an example of the latter here in San Diego. Robert Beyster's name has remained inexplicably obscure in the business world. Hopefully that will change.

Robert Beyster has, at last, written a book. As my copy is only now shipping, I can recommend it only because of what I've heard of Dr. Beyster and his company and not anything in the actual book. Dr. Beyster is a reminder that not all CEO's are created equal and given his track record it is hard to believe that his book won't be a valuable read.

Some companies don’t just give stock and stock options – they actually expect employees to accept entrepreneurial roles. Robert Beyster, founder of SAIC, articulated a key challenge to his company as being the recruitment, retention, and reward of entrepreneurial employees who are also team players. For Beyster, this is not mere rhetoric. He has built a company with hundreds of operating divisions, 44,000 employees and $6.7 billion in sales. [1]

Through stock ownership, he’s made millionaires out of hundreds of employees, and has retained only 1.3% of the company – an amount still worth about $100 million. SAIC’s top management operate more like venture capitalists than a strategic management team anxious to impose strategic and process discipline onto lower-level managers. They are less interested in "strategic fit" than profit potential. The market success of projects, products, and business divisions are their own consequences, and shared equity helps to align the interests of shareholders, management, and employees towards the natural consequences of business success.

What’s more, SAIC shareholders are the employees and the employees are the shareholders. Using an internal market for share trading, only SAIC employees, directors, and consultants could own shares under Beyster's management. (Since Beyster has retired, that has changed.) Few leaders have done as much as Beyster to make explicit the fact that by the close of the information economy, it is the knowledge workers employed by corporations who also own these corporations, who are both the source of equity and value. And Beyster's strategy seems to have worked.

From the time that Beyster founded the company to the time that he retired a few years ago, revenues and profits had grown an average of 35% per year for 35 years, an amazing feat of business growth. It wasn’t until his 32nd year at SAIC that he failed to grow both revenues and profits over the previous year.

Employees everywhere can only hope that their corporate board members read Beyster's book. And this is the paradox of Beyster's example: from what I can tell, his focus was not on directly driving business results or creating wealth but was, rather, on creating an environment that encouraged employees to do this. Oddly, most corporations look like the former Soviet Union - centrally planned and boasting five year plans against which they expect behavior to conform. Beyster seems to be one of those rare corporate leaders who showed confidence in market signals and the entrepreneurial initiative of employees. He's actually proven a viable alternative to the common corporate model.

If transforming the corporation in the next few decades will become as important to progress as transforming the nation-state was to progress in the 18th century, Beyster's philosophy and strategy deserves our attention. He's already offered an example of what it means to blur the distinction between employee and entrepreneur.

In 20 years, I suspect that names like Robert Beyster and Dee Hock will be better known to business students than names like Larry Ellison or Jack Welch. Today's media focuses on the CEOs who've succeeded in the old model; tomorrow's history books will focus on the CEOs who who helped to create a new corporate model. It is hard to believe that Robert Beyster's story won't be included in the larger story of the transformation of business in the 21st century.

[1] The San Diego Union-Tribune, Saturday July 17, 2004, p. C-1, “Founder of SAIC steps down from his position as chairman.” Numbers reported for the fiscal year ended in January, 2004. The title of his new book states that the company has now grown to more than $8 billion.

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